Inside information - how 'informative' does it need to be?

In Mansfield v The Queen & Anor; Kizon v The Queen & Anor [2012] HCA 49 the High Court found that, in cases concerning 'insider trading', it is irrelevant whether the information traded on is true, false or a mixture of the two.

In January 2002, Mr Malcolm Day, the Managing Director of listed public company, AdultShop.com Limited (Adultshop), had several conversations with a Nigel Mansfield, in which Mr Day painted a very optimistic picture of Adultshop's projected financial performance for the financial year. In particular, he told Mr Mansfield that the expected annual turnover and profit had risen greatly from previous projections, and also indicated that a well-known Australian businessman had recently bought 4.9% of the stock.

What Mr Day told Mr Mansfield was not true.

It was alleged that Mr Mansfield then told Mr John Kizon what Mr Day had said, and each of Mr Mansfield and Mr Kizon purchased or procured the purchase of shares in Adultshop. Each of Mr Mansfield and Mr Kizon were indicted on various counts including conspiracy to commit insider trading and, in the case of Mr Mansfield, insider trading.

In essence, a person is caught by the insider trading prohibition where the person possesses information that is not generally available and the person knows, or ought reasonably to know, that if the information were generally available a reasonable person would expect that the information would have a material effect on the price or value of the relevant shares.