German construction group Hochtief is liable for a fine of up to $1 million after admitting to insider trading ahead of a $1.15 billion hostile takeover of Leighton Holdings in 2014.
Hochtief, the controlling shareholder of Leighton Holdings, has acknowledged it breached the Corporations Act when it issued instructions on January 29 to buy Leighton shares while being aware of inside information related to Leighton's 2013 full-year financial results, according to documents filed in the Federal Court of Australia by the Australian Securities and Investments Commission.
"Hochtief AG has admitted the alleged contravention," ASIC said.
The legal proceedings show foreign-listed companies are not immune from regulatory investigation if they trade on price-sensitive information. Hochtief is the only foreign company in recent years to be taken to court by ASIC for insider trading.
The Australian Shareholders' Association, which queried Hochtief's trades in Leighton's shares with the Australian Securities Exchange in February 2014, said Hochtief had timed the share purchase poorly.
"It was a sloppy process on their part," ASA chairman Diana D'Ambra told The Australian Financial Review. "We do need [trading] blackout periods and companies need to adhere to them."
The ASA sent a letter to the ASX in February 2014 asking why trading blackouts did not apply to Hochtief, given it had several board seats at Leighton.
'Doesn't seem right'
"It doesn't seem right that a party with inside information on the forthcoming result can purchase shares so soon before making a material earnings release to the market," the ASA's policy and engagement co-ordinator, Stephen Mayne, said in the letter, which was reported by The Australian Financial Review.
Leighton released a letter from Hochtief on February 13 denying that the German group had engaged in insider trading.
ASIC alleges that the letter was "incorrect" because Hochtief had told its Australian directors to buy Leighton shares while in possession of inside information.
The ASX does not prescribe blackout periods and Hochtief, which is listed in Germany, is not subject to ASX listing rules.
While ASX rules require listed companies to have trading policies, including closed trading periods, and to make them public, the companies determine the details themselves and typically apply only to management and board directors, not corporate shareholders.
ASIC has asked the court to order Hochtief, which is based in Essen and owned by Spanish construction group ACS, to pay $50,000 in costs and a "pecuniary penalty". The maximum penalty for insider trading by a corporation is $1 million.
Hochtief said it would argue that its breach was "inadvertent".
Dispute over extent of profit
"By its contravening conduct, Hochtief did not seek or obtain trading profit," Hochtief said.
ASIC and Hochtief are in dispute over how much profit the German group made from the inside share trading and how many days Hochtief traded in Leighton's shares.
Hochtief has held on to Leighton's shares after acquiring them because the stock purchases were part of a hostile takeover of Leighton in March 2014.
Hochtief's parent company, ACS, subsequently replaced Leighton's Australian management team with Spanish executives and changed the company's name to CIMIC.
CIMIC's shares fell 91¢ on Tuesday to close at $23.81.
The German group, which owned 55 per cent of Leighton until mid-2013, started buying shares in the Australian construction group in late 2013, and currently owns almost 70 per cent of the company.
ASIC's investigation focuses on late 2013 and early 2014, when Hochtief was creeping up Leighton's share register ahead of its full-year results announcement on February 20.
Emailed plan to buy
David Robinson, one of Hochtief's nominees on Leighton's board, emailed Hochtief chief financial officer Peter Sassenfeld (who also sat on Leighton's board), on November 20, 2013 with a plan to buy 4.8 million Leighton shares in January.
Hochtief Australia directors resolved to buy the shares at a meeting on November 28 through stockbroker JP Morgan.
Hochtief started buying shares in Leighton on January 20. On January 23, Mr Robinson suggested the period for buying Leighton's stock be extended to February 14 because share purchases had been slow due to delays in funds arriving and low trading volumes.
"I can confirm that we continue to be NOT in possession of any price-sensitive information," Mr Robinson said in an email to Hochtief's chief compliance officer, Thomas Sonnenberg. Hochtief agreed to extend the purchasing period.
Hochtief bought 358,165 Leighton shares on January 28 and another 1.27 million Leighton shares between January 29 and February 3.
ASIC alleges that Mr Robinson and Mr Sassenfeld were aware as early as January 14 that Leighton would report annual underlying net profit after tax of $583.8 million in late February – at the high end of the company's guidance of between $520 million and $600 million – following an audit committee meeting.
Leighton's shares rose 4.9 per cent to close at $17.21 after it released its annual results on February 20.
"If the information had been generally available, a reasonable person would have expected it to have a material effect on the price of ordinary shares in Leighton," ASIC said.