German construction group Hochtief has admitted to insider trading ahead of its $1.15 billion hostile acquisition of Leighton Holdings in 2014, the Australian Securities and Investments Commission says.
Hochtief, the controlling shareholder of Leighton Holdings, which changed its name to CIMIC after being acquired by the German group, has acknowledged it breached the Corporations Act.
The breach occurred when it became aware of information related to Leighton's 2013 full-year financial results, according to documents filed in the Federal Court of Australia by ASIC.
Hochtief, which is based in Essen, was in possession of inside information in late January when it extended a completion date for acquiring Leighton's shares, the lawsuit alleges.
"Hochtief AG has admitted the alleged contravention," ASIC says in a statement.
ASIC has asked the court to order Hochtief, which is owned by Spanish construction group ACS, to pay $50,000 in costs and a "pecuniary penalty".
Hochtief said it would submit to the court that its contravention was "inadvertent".
"By its contravening conduct, Hochtief did not seek or obtain trading profit," Hochtief said in a statement on Tuesday. "Hochtief has been actively cooperating with ASIC in its investigations into this matter since August 2014."
Hochtief, which controlled 55 per cent of Leighton until mid-2013, started buying shares in the Australian construction group in late 2013 as part of a strategy to acquire the company, with the aim of controlling 69.9 per cent by the end of January 2016.
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.
David Robinson, one of Hochtief's nominees on Leighton's board, emailed another Hochtief Australia director, Peter Sassenfeld, 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 JPMorgan.
Hochtief started buying shares in Leighton on January 20. On January 23, Mr Robinson suggested the period for purchasing Leighton's shares be increased 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, at the high end of the company's guidance of between $520 million and $600 million, following an audit committee meeting.
"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 in the lawsuit.
On February 6, the Australian Shareholders Association sent a letter to the Australian Securities Exchange asking why trading blackouts did not apply to Hochtief, given it had several board seats at Leighton.
"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 coordinator, 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.
But ASIC alleges that the letter was "incorrect" because Hochtief had told its Australian directors to buy Leighton shares while in possession of inside information.
Leighton's shares closed up 4.9 per cent at $17.21 after it released its annual results on February 20, 2014.
ASIC says it is "in dispute" with Hochtief on how much profit the German group made from the inside share trading.