Schlaepfer & Anor v Australian Securities and Investments Commission & Anor [2019] NSWSC 1644

Last week, the Supreme Court of NSW delivered a judgment that will give succour to regulators faced with defamation claims relating to the conduct of their statutory roles. It also validates the use of statistical evidence in proving certain kinds of market manipulation in contravention of ss 1041A and 1041B of the Corporations Act 2001.

In Schlaepfer & Anor v Australian Securities and Investments Commission & Anor [2019] NSWSC 1644, the plaintiffs had claimed that ASIC and one of its officers, Mr Yanco, had defamed Mr Schlaepfer and committed injurious falsehood against him and Select Vantage Inc in a series of oral conversations admittedly held by Mr Yanco with executives of various licensed stockbrokers.  In the conversations, Mr Yanco had (the court found) expressed concern about the activities of a direct market access client that had been ‘turned off’ by another broker for layering behaviour (a form of stock market manipulation).  ASIC and Mr Yanco successfully defended all claims. 

In relation to the defamation claims, the imputations alleged to have arisen from the conversations included that Mr Schlaepfer (himself) was engaging in criminal conduct by layering the stock market or, alternatively, was engaging in unlawful market manipulation.  Fagan J held that the impugned oral communications were not in the terms alleged and that the alleged imputations and innuendos were not conveyed by them, but that, if they were, the defendants were protected from liability by common law and statutory defences of qualified privilege: see [292]. In that regard, his Honour was “comfortably satisfied” that each of the brokers with whom Mr Yanco spoke had an interest in receiving the information Mr Yanco conveyed to them ([268]) and noted that, for a regulatory officer in Mr Yanco’s position who was required to make a decision on whether or not to act to protect the market, the accumulated evidence of market manipulation by Select Vantage was ample: [272].

In connection with ASIC’s truth defence to the defamation claims, ASIC proved that Select Vantage traders had manipulated the stock market in contravention of ss 1041A and 1041B of the Corporations Act.  (The court did not find that Mr Schlaepfer was knowingly concerned in any such activity.) ASIC proved this manipulation based on expert statistical evidence that examined patterns of characteristics in their trading activity rather than direct evidence of intention concerning individual trades: see [191]-[246].

Patrick Holmes was one of the barristers who acted for the successful defendants. Patrick’s work focused on the market manipulation aspects of the case.

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