A FORMER analyst at Moody's Investors Service and the friend to whom he allegedly passed inside information are set to face trial over insider trading charges, after losing a court appeal.
Sydney-based Daniel Joffe, who worked at Moody's, and Nathan Stromer have each been charged with 10 counts of insider trading for events alleged to have taken place in 2006 and early 2007.
The pair were recently granted leave to appeal an earlier decision in the NSW Supreme Court. The appeal was allowed given the issues it raised were of "public importance" in the supervision of financial markets, according to a recently published judgment.
Had the appeal been successful, it would have been difficult for the corporate regulator to pursue market misconduct such as insider trading.
The appeal was heard by NSW Supreme Court Chief Justice Tom Bathurst, NSW Court of Appeal president James Allsop and Justice Reginald Barrett.
Mr Joffe and Mr Stromer each sought to have six of the 10 charges against them quashed. Those charges dealt with the purchase of contracts for difference.
When buying a CFD, a person does not have to buy the underlying equity, and can speculate on whether a stock price will rise or fall. The pair argued that CFDs were not "financial products" as defined in the Corporations Act, and therefore could not be "the subject of charges of contraventions" of the act. CFDs, they argued, were contracts for the future provision of services and therefore fell into a category exempting them from being considered financial products.
Another argument, that CFDs involved a "credit facility" and was therefore not a financial product, was rejected by Justice Allsop as being "too simplistic, and it is wrong".
The three judges unanimously dismissed the appeal. The charges outlined in the judgment reveal the depth of information being received by Moody's from major corporations, ahead of being publicly released.
One charge against Mr Joffe relates to inside information received by Moody's from the Australian Wheat Board. AWB had told Moody's it was set to announce to the Australian Securities Exchange that it was going to indemnify its international arm for up to $259 million for legal costs from the Cole Inquiry, which arose following its activities in Iraq.
AWB also told Moody's its forecast wheat production was no longer correct. It is alleged Mr Joffe then "procured" Mr Stromer to buy 135,000 AWB CFDS.
Another charge against Mr Joffe alleges that he procured Mr Stromer to buy 54,200 CFDs in Boral between October 25 and October 26 of 2006. On October 25, Boral had told Moody's that a downturn in the US was worse than expected and that it expected to issue a profit downgrade.
