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Gunns' Gay may face further action to recoup -

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PETER LLOYD: The corporate regulator is considering further action against former Gunns chairman John Gay, after the Tasmanian Supreme Court handed down what many experts consider a lenient penalty for his insider trading.

Mr Gay was fined just $50,000 for selling almost 3.5 million Gunns shares after he had received an internal report that foreshadowed massive profit declines.

A conservative estimate puts the losses he avoided at around $700,000.

The Australian Securities and Investments Commission says proceeds of crime legislation might be used to recover some of those funds.

Analysts and shareholders say the court's decision today undermines ASIC's recent efforts to crackdown on insider trading.

Business reporter Michael Janda has more.

MICHAEL JANDA: Shareholders are outraged by the penalty handed to former Gunns chairman John Gay.

The Australian Shareholder Association's Stephen Mayne.

STEPHEN MAYNE: He's got away with it and has only had to pay $50,000 and when you consider that he paid off $3 million worth of debt by selling the shares, $50,000 is a trifling amount of money because those shares today - those $3 million worth of shares today - are worth zero because Gunns is broke.

MICHAEL JANDA: By selling his shares in December 2009, after he'd received a report about Gunns' poor financial performance, Gay dodged a 20 cent-a-share plunge in their price on the day that data was made public in February the next year.

On the 3.4 million shares he sold, Gay would have been nearly $800,000 worse off than he was by selling the shares for the price he got in December.

The director of Melbourne University's Centre for Corporate Law, Professor Ian Ramsay, says the $50,000 punishment clearly didn't match the crime.

IAN RAMSAY: Here was someone who certainly traded on the basis of price sensitive confidential information and the money gained by that trade is in fact much more than the financial penalty imposed by the judge today.

MICHAEL JANDA: Professor Ramsay says the prosecution had asked for much tougher penalties, and he's sure the Australian Securities and Investments Commission will, at least privately, be disappointed with the outcome.

IAN RAMSAY: The securities commission has been devoting significant resources in recent years to investigation and prosecution of insider trading, we've never seen the commission more active than it is these days, but the commission will of course want to be backed up by rigorous penalties being imposed by the courts and I doubt that we've seen that today.

MICHAEL JANDA: But, publicly, ASIC commissioner Cathie Armour was putting a positive spin on the result.

CATHIE ARMOUR: In this case the consequence of the conviction and the fine will be that Mr Gay would automatically be disqualified from managing corporations for five years, so it is a significant penalty for a company director.

MICHAEL JANDA: ASIC says it is too soon to rule out an appeal, as it needs time to examine the judge's reasons for the sentence.

In his reasons, Justice Porter emphasised that Mr Gay's motive for the sale was to get his financial affairs in order due to his diagnosis with serious prostate cancer, rather than to profiteer from inside information.

In effect, the judge found Gay had exercised poor judgment in selling the shares, rather than dishonesty, and cited Gay's exemplary character references.

But Professor Ramsay says Justice Porter may have focused too much on the individual case, and not enough on the broader implications.

IAN RAMSAY: The judge may well have down-played other relevant factors such as the need for what we call general deterrence, the need to send a message out there into the Australian markets that insider trading is wrong and that where it occurs it will be punished and punished appropriately by the courts.

MICHAEL JANDA: That's a view the Shareholders Association’s Stephen Mayne agrees with.

STEPHEN MAYNE: This is the first time in Australian history that a former ASX100 chairman, that's someone who was personally worth many, many tens of millions of dollars, very high profile individual - when they admit to insider trading, I would have thought that it would be more serious than a $50,000 fine and I just think it's disappointing the soft message that goes out to the community.

MICHAEL JANDA: Even if ASIC chooses not to appeal the sentence, Ms Armour says it may well look to recover the benefit Gay gained from his crime.

CATHIE ARMOUR: There is a separate process involving the proceeds of crime legislation in relation to whether or not an individual can retain the proceeds of an action which was in fact criminal action.

MICHAEL JANDA: And that process is being undertaken to perhaps recover some of that money that Mr Gay potentially saved?

CATHIE ARMOUR: Without commenting on specific cases we ordinarily refer insider trading matters to the Australian Federal Police or the Commonwealth Director of Public Prosecutions for a proceeds of crime action and if that action is successful then proceeds of crime are paid to the Commonwealth.

MICHAEL JANDA: Even if such an action proceeds and succeeds, Mr Gay won't be any worse off financially for his insider trading except, perhaps, for his lawyer’s bills.

PETER LLOYD: Michael Janda.