Skip to main content

When Kamay Met Hill: Organisational Ethics in Practice

Abstract

The Kamay and Hill insider trading conviction in Australia highlights many of the issues and problems involved in the prevention, detection and prosecution of insider trading. The case uniquely highlights how ethical behaviour is instilled at home, in school and in society, and the need for ethical responsibility at the personal and organisational level to complement legal rules and enforcement. We use the Kamay and Hill case to explore the reasons behind the failure of the traditional top-down approach to insider trading prevention, where institutional ethical codes of conduct largely reflect and rely upon national rules, norms, and regulation. We propose a bottom-up approach to ensure that individual and organisational behaviour is ethical, where emphasis is not on compliance but on a set of core ethical values that allow individual and corporate expression. It is our strong belief that compliance cannot replace ethics.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2
Fig. 3

Notes

  1. The Australian Bureau of Statistics is an independent statutory authority of the Australian government whose functions duties and powers are set out in the Australian Bureau of Statistics Act 1975 and the Census and Statistics Act 1905.

  2. There is a rich literature on the source of individual ethics and norms. For example, Emerson and McKinney (2010) highlight the importance of religion in personal ethics. Werner (2008) also notes how religious holiness manifests in virtues of integrity and moral purity.

  3. Note that in Kamay and Hill’s case the court imposed a criminal punishment on individuals who abused insider trading laws. Meanwhile, institutions that manipulate financial markets and cause much more information distortion and social harm receive fines and sanctions. The scandal surrounding the manipulation of the London Interbank Offered Rate (LIBOR) is one such example (Hou and Skeie 2014). Here the reputational cost was overwhelmed by the potential profits, thus the constraining effects that reputation may play on insider actions were insufficient (Cui et al. 2015).

  4. For the sake of brevity, we do not discuss popular normative theories and potential conflicts between individual moral beliefs. These issues are discussed at length by Hasnas (2016) and Reiter (2016).

  5. http://www.smh.com.au/cqstatic/12z7v7/DPP%20v%20Hill%20and%20Kamay%20-%20Sentence.pdf.

  6. See http://www.rba.gov.au/mkt-operations/ex-rate-rba-role-fx-mkt.html for a discussion on economic factors that affect the AUD–USD exchange rate.

  7. Kamay was sentenced to seven years and three months, while Hill to three years and three months. Hill received a lower sentence because he had not been aware of the scope and profitability of Kamay’s trading activity. The two had agreed in May 2013 that the trading would occur over 12 months with the aim of making just AUD200,000. This gross amount would have translated to an after-tax profit of AUD50,000 for each, since Kamay had the accounts in his name and had a marginal tax rate of 50%. Interestingly, had they stuck to the original agreement the trading scheme would likely never have been detected.

  8. http://info.worldbank.org/governance/wgi/index.aspx#faq-2.

  9. http://www.rba.gov.au/about-rba/our-role.html.

  10. The ASIC has investigated a number of suspected cases of insider trading on key economic news, http://www.smh.com.au/national/rba-interest-rate-decisions-and-australian-dollar-movements-20150411-1mj6cj.html.

  11. ASIC Regulatory Guide 238 (2013), http://download.asic.gov.au/media/1247093/rg238.pdf.

  12. https://www.cfainstitute.org/ethics/codes/Pages/index.aspx.

  13. http://www.bankers.asn.au/industry-standards/ABAs-code-of-banking-practice.

  14. https://www.nab.com.au/content/dam/nabrwd/About-Us/national-australia-bank-code-of-conduct.pdf.

  15. http://adm.monash.edu/workplace-policy/ethics/.

  16. http://adm.monash.edu/human-resources/ethics/ethics-statement-web.pdf.

  17. http://www.fidelisinstitute.org/article.php?se=13&ca=22.

References

  • Batten, J. A., Loncarski, I., & Szilagyi, P. G. (2015). Strategic insider trading: Evidence from the foreign exchange markets. Working paper.

  • Bekaert, G., & Harvey, C. R. (1995). Time-varying world market integration. Journal of Finance, 50(2), 403–444.

    Article  Google Scholar 

  • Beny, L. N. (2007). Insider trading laws and stock markets around the world: An empirical contribution to the theoretical law and economics debate. Journal of Corporations Law, 32(2), 237–300.

    Google Scholar 

  • Betzer, A., & Theissen, E. (2010). Sooner or later: An analysis of the delays in insider trading reporting. Journal of Business Finance and Accounting, 37(1/2), 130–147.

    Article  Google Scholar 

  • Bhattacharya, U. (2014). Insider trading controversies: A literature review. Annual Review of Financial Economics, 6, 385–403.

    Article  Google Scholar 

  • Bhattacharya, U., & Daouk, H. (2002). The world price of insider trading. Journal of Finance, 55(1), 975–1008.

    Google Scholar 

  • BIS. (2016a). Triennial central bank survey: Foreign exchange turnover in April 2016. Basel: Monetary and Economic Department, Bank for International Settlements.

    Google Scholar 

  • BIS. (2016b). FX global code: May 2016 update. Basel: Foreign Exchange Working Group, Bank for international Settlements.

    Google Scholar 

  • Brown, T. A., Bearnes, B., Littvay, L., & Sautter, J. A. (2010). Ethics and personality: Empathy and narcissism as moderators of ethical decision making in business students. Journal of Education for Business, 85, 203–208.

    Article  Google Scholar 

  • Commonwealth Director of Public Prosecutions CDPP v Hill and Kamay. (2015). VSC 86 (17 March 2015).

  • Cui, J., Hoje, J., & Li, Y. (2015). Corporate social responsibility and insider trading. Journal of Business Ethics, 130, 869–887.

    Article  Google Scholar 

  • Emerson, T. N., & Mckinney, J. A. (2010). Importance of religious beliefs to ethical attitudes in business. Journal of Religion and Business Ethics, 1, 1–15.

    Google Scholar 

  • Engelen, P. J., & Van Liederkerke, L. (2007). The ethics of insider trading revisited. Journal of Business Ethics, 74, 497–507.

    Article  Google Scholar 

  • Fernandes, N., & Ferreira, M. A. (2009). Insider trading laws and stock price informativeness. Review of Financial Studies, 22, 1845–1887.

    Article  Google Scholar 

  • Franklin, K. (2013). U.S. v. U.K. insider trading laws: Who is the top dog? February 21, 2013. https://ssrn.com/abstract=2308356.

  • Frino, A., Satchell, S., Wong, B., & Zheng, H. (2013). How much does an illegal insider trade? International Review of Finance, 13, 241–263.

    Article  Google Scholar 

  • Goshen, Z., & Parchomovsky, G. (2006). The essential role of securities regulation. Duke Law Journal, 55(4), 711–782.

    Google Scholar 

  • Green, S. P. (2010). Lying, cheating, and stealing: A moral theory of white-collar crime. Oxford: Oxford University Press.

    Google Scholar 

  • Grossman, S. J., & Stiglitz, J. E. (1980). On the impossibility of informationally efficient markets. American Economic Review, 70, 393–408.

    Google Scholar 

  • Hasnas, J. (2016). Should corporations have the right to vote? A paradox in the theory of corporate moral agency. Journal of Business Ethics (forthcoming).

  • Hou, D., & Skeie, D. (2014). LIBOR: Origins, economics, crisis, scandal, and reform. Staff Report 667 (March). New York, NY: Federal Reserve Bank of New York.

  • ICN. (2005). An increasing role for competition in the regulation of banks. Bonn, Germany: International Competition Network.

    Google Scholar 

  • Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.

    Article  Google Scholar 

  • Korczak, A., Korczak, P., & Lasfer, M. (2010). To trade or not to trade: The strategic trading of insiders around news announcements. Journal of Business Finance and Accounting, 37(3), 369–407.

    Article  Google Scholar 

  • Koslowski, P. (2011). The ethics of banking: Conclusions from the financial crisis. Issues in Business Ethics 30. Germany: Springer. ISBN 978-94-007-0656-9.

  • Kyle, A. S. (1985). Continuous auctions and insider trading. Econometrica, 53(6), 1315–1335.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106, 1113–1155.

    Article  Google Scholar 

  • Langevoort, D. C. (2016). Behavioral ethics, behavioral compliance. In J. Arlen (Ed.), Research handbook on corporate crime and financial misdealing. Cheltenham: Edward Elgar Publishing.

    Google Scholar 

  • Lee, I., Lemmon, M., Li, Y., & Sequeira, J. M. (2014). Do voluntary corporate restrictions on insider trading eliminate informed insider trading? Journal of Corporate Finance, 29, 158–178.

    Article  Google Scholar 

  • McGee, R. W. (2008). Applying ethics to insider trading. Journal of Business Ethics, 77, 205–217.

    Article  Google Scholar 

  • McGee, R. W. (2009). Analyzing insider trading from the perspectives of utilitarian ethics and rights theory. Journal of Business Ethics, 91, 65–82.

    Article  Google Scholar 

  • McInish, T. N., Frino, A., & Sensenbrenner, A. (2011). Strategic illegal insider trading prior to price sensitive announcements. Journal of Financial Crime, 18(3), 247–253.

    Article  Google Scholar 

  • Milgram, S. (1974). Obedience to authority. New York, NY: Harper and Row.

    Google Scholar 

  • Morck, R. (2008). Behavioral finance in corporate governance: Economics and ethics of the devil’s advocate. Journal of Management and Governance, 12, 179–200.

    Article  Google Scholar 

  • Nagy, D. M. (2009). Insider trading and the gradual demise of fiduciary principles. Iowa Law Review, 94, 1315–1379.

    Google Scholar 

  • O’Hara, P. A. (2001). Insider trading in financial markets: Legality, ethics, efficiency. International Journal of Social Economics, 28, 1046–1062.

    Article  Google Scholar 

  • Oates, G., & Dias, R. (2016). Including ethics in banking and finance programs: Teaching “we shouldn’t win at any cost”. Education + Training, 58(1), 94–111.

    Google Scholar 

  • Olmo, J., Pilbeam, K., & Pouliot, W. (2011). Detecting the presence of insider trading via structural break tests. Journal of Banking and Finance, 35, 2820–2828.

    Article  Google Scholar 

  • Reiter, S. L. (2016). Corporate profit, social welfare, and the logic of capitalism. Business and Society Review, 121(3), 331–363.

    Article  Google Scholar 

  • Silvers, R. (2016). The valuation impact of SEC enforcement actions on nontarget foreign firms. Journal of Accounting Research, 54, 187–234.

    Article  Google Scholar 

  • Solnik, B. H. (1977). Testing international asset pricing: Some pessimistic views. Journal of Finance, 32(2), 503–512.

    Article  Google Scholar 

  • Statman, M. (2009). The cultures of insider trading. Journal of Business Ethics, 89(Supplement 1), 51–58.

    Article  Google Scholar 

  • Steinberg, M. I. (2003). Insider trading regulation—A comparative analysis. The International Lawyer, 37(1), 153–171.

    Google Scholar 

  • Stulz, R. M. (1981). A model of international asset pricing. Journal of Financial Economics, 9(4), 383–406.

    Article  Google Scholar 

  • Terpstra, D. E., Rozell, E. J., & Robinson, R. K. (1993). The influence of personality and demographic variables on ethical decisions related to insider trading. The Journal of Psychology, 127, 375–389.

    Article  Google Scholar 

  • Ventoruzzo, M. (2014). Comparing insider trading in the United States and in the European Union: History and recent developments. ECGI Law Working Paper 257/2014, European Corporate Governance Institute, Belgium, Brussels.

  • Werhane, P. (1989). The ethics of insider trading. Journal of Business Ethics, 8, 841–845.

    Article  Google Scholar 

  • Werner, A. (2008). The influence of Christian identity on SME owner–managers. Journal of Business Ethics, 82, 449–462.

    Article  Google Scholar 

  • Yadav, Y. (2016). Insider trading and market structure. UCLA Law Review, 63(4), 968–1033.

    Google Scholar 

Download references

Acknowledgements

This paper was first discussed at Monash University, Australia, in 2015. The authors wish to thank those who shared their opinions and views on the actions of Christopher Hill and Lukas Kamay, who are both Monash University alumni. We also like to thank Aleksandr Gevorkyan, participants at the 22nd International Vincentian Business Ethics Conference, Patrick Flanagan and three anonymous referees for valuable comments and suggestions.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Igor Lončarski.

Appendix: Policy on Pre-embargo Access to ABS Statistical Releases

Appendix: Policy on Pre-embargo Access to ABS Statistical Releases

To ensure impartiality and integrity of ABS statistics, it is standard ABS policy and practice to make all our statistical releases available on our website to all government, commercial and public users of our statistics, simultaneously, from 11.30 a.m. (Canberra time) on the day of their release. Prior to 11.30 a.m., all ABS statistics are treated as confidential and regarded as “under embargo”.

However, given the high level of market and community interest in some statistical series, it is important from a “public good” perspective that key ministers are able to respond in an informed manner to requests from the media for early comment on the released statistics, thereby avoiding any inadvertent misinterpretation. The ABS also provides access for a range of authorised Wires service providers.

For selected government agencies, a secure “lockup” facility is provided for both market sensitive and a small number of other complex key ABS statistical releases. This enables authorised government officials and ministerial staff time to analyse the release and develop a briefing to be provided to relevant ministers after lifting of the embargo.

Authorised persons attending a lockup are required to remain in a secure room managed by ABS staff and are prohibited from communicating any information from the statistical release to anyone outside the room, until the embargo is lifted at 11.30 a.m. (Canberra time). Attendees at the lockup are also required to sign security undertakings which include provision for prosecution under the Crimes Act 1914 for anyone who breaches the conditions for attending the lockup.

The following products are approved for provision to authorised persons via ABS-hosted lockups on the morning of the day of their release:

Balance of Payments and International Investment Position, Australia—quarterly (cat. no. 5302.0)

Labour Force, Australia—monthly (cat. no. 6202.0)

Consumer Price Index, Australia—quarterly (cat. no. 6401.0)

Australian National Accounts: National Income, Expenditure and Product—quarterly (cat. no. 5206.0)

International Trade in Goods and Services, Australia—monthly (cat. no. 5368.0)

Housing Finance, Australia—monthly (cat. no. 5609.0)

Private New Capital Expenditure and Expected Expenditure, Australia—quarterly (cat. no. 5625.0)

Business Indicators, Australia—quarterly (cat. no. 5676.0)

Labour Price Index, Australia—quarterly (cat. no. 6345.0)

Producer Price Indexes, Australia—quarterly (cat. no. 6427.0)

Retail Trade, Australia—monthly (cat. no. 8501.0)

Building Approvals, Australia—monthly (cat. no. 8731.0)

Australian National Accounts: State Accounts—annual (cat. no. 5220.0)

Recorded Crime—Victims, Australia—annual (cat. no. 4510.0)

Recorded Crime—Offenders—annual (cat. no. 4519.0)

Criminal Courts, Australia—annual (cat. no. 4513.0)

Crime Victimisation, Australia—annual (cat. no. 4530.0)—also previously known as Crime and Safety, Australia (cat. no. 4509.0).

Construction Work Done, Australia, Preliminary—quarterly (cat. no. 8755.0)

In addition to the above arrangements, and having regard to the complexity of analyses required, a number of Commonwealth Treasury officials have access to Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0) early afternoon on the day before its release.

In exceptional circumstances, approval may be given for additional ad hoc lockups for other key statistical releases. If possible, a public notice of intention to hold this lockup will be published on the ABS website at least six working days in advance of the event. If this is not possible notification of an ad hoc, lockup will be made on the ABS website as soon as possible.

The ABS also provides authorised Wires service providers with a shorter secure “lockup” to enable them to prepare, referred to as the “Wires Preparation Service”.

The Wires Preparation Service allows access to a limited range of embargoed key statistical products (Category 1 and all but two Category 2 Main Economic Indicators, and one Other Leading Indicator), to authorised Wires service representatives in a secure environment at the ABS NSW office, 44 Market Street, Sydney, 10 min prior to their public release at 11:30 a.m., Canberra time. Wires service providers are not permitted to release any material until the embargo has been lifted at 11.30 a.m. Canberra time. Access to statistics via the Wires Preparation Service is to ensure market-sensitive material is accurately represented at the time of public release. It is not intended to facilitate more comprehensive analyses of the statistics; such analyses may be conducted after the embargo is lifted at 11:30 a.m., Canberra time.

The following Wires service providers attend the Wires Preparation Service:

Need To Know

Selerity

Market News International

Thomson Reuters

Dow Jones Newswires

Bloomberg News

AAP.

David Kalisch

Australian Statistician

Notes: This page was first published on 21 December 2007, and last updated on 18 May 2015

http://www.abs.gov.au/websitedbs/D3310114.nsf/4a256353001af3ed4b2562bb00121564/e4c5f2f722533b9eca2573b7001b56ce!OpenDocument.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Batten, J.A., Lončarski, I. & Szilagyi, P.G. When Kamay Met Hill: Organisational Ethics in Practice. J Bus Ethics 147, 779–792 (2018). https://doi.org/10.1007/s10551-017-3435-4

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-017-3435-4

Keywords

  • Abuse of public office
  • Australia
  • Ethical norms and values
  • Ethical standards and codes
  • Industry standards
  • Foreign exchange market
  • FX Global Code
  • Insider trading
  • UN Global Compact