THE path towards illegal riches for the jailed insider trader John Hartman was simple and, until he was detected, very profitable.
On Thursday Hartman, 25, was jailed for four-and-a-half years on 19 counts of insider trading, provoking expressions of surprise at the severity of the sentence for a young man with no previous convictions.
Hartman’s sentence, with a minimum term of three years, included discounts for co-operating with the Australian Securities and Investments Commission from his first interview. He received another discount for his co-operation in detailing six offences of ”tipping”, or passing inside information to his childhood friend, Oliver Curtis, 25.
Mr Curtis first met Hartman when he was about 13. ASIC has not laid charges in relation to him. Mr Curtis is the son of Nicholas Curtis, the founder of Sino Resources and the executive chairman of rare earths miner Lynas Corp.
Justice Peter McClellan accepted the offences of ”tipping” would not have been discovered if Hartman had not confessed.
The judgment sets out how Hartman, paid $350,000 a year as an equities dealer for Orion Asset Management, made insider trading profits of almost $1.9 million. Hartman, of Mosman, has repaid about $1.6 million as proceeds of crime.
First, Hartman set up a private account with IG Markets, the provider of a derivative known as contracts for difference.
The account allowed him to trade in CFDs that tracked shares he was also handling professionally for Orion Asset Management.
Despite signing Orion’s trading policy outlining his irresponsibility to avoid insider trading, and twice responding ”no trading” to queries from Orion’s compliance department, Hartman was busy using inside information to trade CFDs.
At its simplest, if Orion bought shares, the share price of the target company was likely to go up.
And if Orion sold the shares, the share price of the target company was likely to go down.
Crucially, Hartman would take his private positions through IG Markets before he pushed the button at Orion, hence the nickname of the practice as ”front-running”. If Orion was buying, Hartman would buy ”long” CFDs in the target share. And if Orion was selling, he would buy ”short” CFDs in the target share.
Hartman used the leverage of CFDs to take big positions over the underlying shares, so he could profit handsomely on even small movements in the share price.
The tipping was also simple. The court found Hartman and Curtis communicated, using BlackBerrys purchased by Mr Curtis, to allow Mr Curtis to also trade in CFDs.
The judgment detailed how Hartman would communicate with Mr Curtis, and Mr Curtis would respond with messages like ”can’t do it”, ”done”, or ”I’m finished.”
”Mr Curtis would send this message so that the offender would know when to start trading on behalf of Orion in the shares,” Justice McClellan said.
By January 20 last year, Hartman’s game was over. He attended a meeting with his lawyer at Orion’s offices and offered his resignation. The same day Hartman notified ASIC he wished to co-operate fully.