Alleged insider trading case cracked through LinkedIn

Alleged insider trading case cracked through LinkedIn

May 12, 2014

Foreign exchange broker Owen Kerr turned to social media website LinkedIn to make the vital connection between the two men accused of one of the country’s biggest insider trading cases.

It was late on a Tuesday in September last year when one of his young client service team handed him the daily transaction report and said: ”Boss, you better take a look at this.”

Mr Kerr’s team had noticed one of their clients, National Australia Bank associate director Lukas Kamay, was making sizable bets on the Australian dollar, minutes and sometimes seconds before the announcement of significant economic news. Mr Kerr, the founder and owner of Pepperstone Financial, looked up Kamay’s profile via his gold LinkedIn account and found he was friends with an Australia Bureau of Statistics employee Christopher Hill through Monash University. “That was when it suddenly clicked that this guy was only trading ABS data and had a man on the inside,” Kerr told Fairfax Media from his Gippsland farm on Sunday.

The tipoff sparked a nine-month surveillance operation code named Operation LEITH that culminated in police executing eight warrants in Canberra and Melbourne on Friday in relation to the $7 million trading scandal.

The Australian Federal Police and the Australian Securities & Investments Commission have frozen the men’s assets, which include Kamay’s purchase of a $2.4 million three-bedroom loft apartment in the inner-Melbourne suburb of Albert Park that was designed by twins Alisa and Lysandra Fraser as part of the reality television show The Block. Court documents reveal that the AFP also used covert internet inquiries through Facebook to reveal that the two men were “friends”.

Kamay, who now faces seven criminal charges, allegedly offered his ABS friend a bribe of more than $50,000 to disclose the inside information. On Friday, Kamay was released on bail to his family home in the Melbourne suburb of Eaglemont with sureties of $200,000 and $300,000.

The 24-year-old Hill was simultaneously arrested in Canberra on Friday and is being transported to face five criminal charges in the Melbourne Magistrate’s Court on Monday. He is alleged to have provided the confidential information to Kamay, including housing and building approval figures, to ‘‘predict fluctuations in the Australian dollar’’ before it was released by the ABS strictly at 11.30am on the relevant days.

Fairfax can now reveal that Pepperstone Financial, the ABS, Kamay’s alternative broker Axicorp and Kamay’s employer the National Australia Bank were all brought into the inner-sanctum of the AFP sting to help build a case. NAB and the ABS monitored the two men in their offices for months using survelliance cameras and phone taps.

“About 11.06am on 2 April 2014, Hill was observed leaving his desk at the ABS in Canberra, with a phone and a piece of paper … about 11.07am, Kamay was observed leaving his NAB workplace in Melbourne,” court documents reveal.

On April 27, perhaps sensing the authorities were closing in, Kamay drove in his BMW roadster to pick Hill up in Box Hill and attend the Optus Connect store where he purchased two pre-paid mobile phones. By this time Hill and Kamay were “deliberately making small trades in the wrong direction when they already knew the outcome” in an effort to throw police off their trail. In one of their last recorded exchanges on May 2 this year, Hill called Kamay to tell him “yeah i got a bit for you, all three” to which Kamay replied “Let’s go”.

NAB have moved to distance itself from the scandal, emphasising that the Kamay’s trades were made in his personal capacity and that “no NAB money, no NAB customer money or NAB systems” were used. NAB chief executive Cameron Clyne sent an internal message to all staff on Friday urging them to report any illegal behaviour. “I want to be clear: the activity alleged by authorities is unlawful and completely unacceptable,” Mr Clyne wrote.

But it was nine months earlier when Pepperstone Financial’s chief executive Owen Kerr twigged to the trades and began investigating Kamay’s LinkedIn profile.

“Kamay was taking quite decent size positions which were larger than his account size could sustain if they went the wrong way, so they were really an all-or-nothing bet and not something someone would normally rationally make,” Mr Kerr says. “He would trade just before the announcements. The earliest they would get in was half an hour but mostly three to five minutes or sometimes even 30 seconds.”

Mr Kerr immediately rang ASIC to deliver the case on a platter but was told the allegations were outside their jurisdiction. “They said contact the AFP. I think we may have rung the wrong part of ASIC; I think we contacted our licensing authority when we probably should have contacted market abuses or something,” Mr Kerr says.

Mr Kerr’s first reaction was to shut down the account but the AFP moved quickly to request the account continue “as usual” so they could continue to monitor Kamay’s trades.

“When Kamay traded we would have to contact the AFP to get authority to proceed and Kamay would call us and be quite nervous about what was going on because it wouldn’t appear in his bank account straight away,” Mr Kerr says. “We just told him it was in processing, we didn’t give anything away,” Mr Kerr said.

The NAB employee Kamay went on to make around 50 more online trades worth around $1.5 million with Pepperstone. He made more than $5 million in online trades through his alternative broker Axicorp which was also conscripted as part of the sting.

“The guys at the top made sure no one else in the company knew,” head of sales at Axicorp Phil Horner says. “From an outsider’s point of view I think a lot of people think they were pretty dumb about it. It’s not much of a mother’s day present,” Mr Horner said.

Pepperstone’s Mr Kerr warned that the two men’s trades were taken by major investment banks in New York including Deutsche Bank, UBS, BNP Paribas and Goldman Sachs, which were now likely to seek restitution.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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