On 27 June 2013 the High Court handed down its unanimous decision in Director of Public Prosecutions (Cth) v JM [2013] HCA 30, regarding the meaning of the phrase “artificial price” in s 1041A of the Corporations Act 2001. That section prohibits taking part in or carrying out transactions that have or are likely to have the effect of creating or maintaining an artificial price for financial products.

The High Court, overturning a majority decision of the Victorian Court of Appeal, held unanimously that:

  • An “artificial price” is one that does not reflect the forces of genuine supply and demand in an open, informed and efficient market;1
  • An “artificial price” includes, but is not limited to, a price resulting from a transaction in which the buyer or seller of listed shares undertook it for the sole or dominant purpose of setting or maintaining a price at a particular level2. It is not confined (as the Victorian Court of Appeal had held) to transactions effected from a position of monopoly or dominant market power;
  • Transacting with the “sole or dominant purpose” of setting or maintaining a particular price is not an element of the offence in s 1041A, but transacting with such a purpose is one way of demonstrating that a price is “artificial”.3   

The High Court declined to decide whether there are other specific types of transactions that will offend s 1041A. However, given the Court’s wide definition of “artificial price”, it is clear the section will apply to a wide variety of transactions that have the effect or likely effect of fixing or maintaining a price that does not reflect market forces of supply and demand.

Implications

The High Court’s decision makes it clear that s 1041A potentially captures a broad range of transactions, and that it may be enough, to contravene the section, to simply transact with the dominant purpose of setting or maintaining the price of a financial product, even if that product’s price was not actually fixed or maintained. Accordingly, it potentially makes it easier for the DPP to prosecute market manipulation charges.

For a more detailed analysis of the High Court’s decision, click here.