Plain ole’ Insider trading isn’t it

Telstra is Australia’s largest Telco which is 51% owned by the government. This Howard government, in office some 10 years, is planning a third and final sell off of Telstra stock to the public. The previous two sell offs, known as T1 and T2 have been nothing short of disastrous for investors as the stock only briefly traded above prospectus price and has been steadily declining for some years. Amazingly Telstra has continued to dive into its cash reserves to deliver ‘false’ dividends to it shareholders. Coincidently one of deepest dives into it cash reserves to buy dividends was just prior to the last federal election where the sale of Telstra was one of key election issues. In that election the Howard government won control of the Australian Senate, a sitting government having control of both the House of Representatives and the Senate had not been seen in for some 20 years, paving the way to pass the necessary laws to allow the full sale of Telstra without opposition. I do not contend the false dividends handed out by Telstra prior to the election had an impact on the outcome; their opponents were appalling.

Local and international Telco analyst have for years been saying that Telstra are not investing nearly enough money in their core infrastructure. I myself have been saying for years that I will not have a land line in my home because I refuse to pay such high monthly rental fees for 100+ year old copper wire. Those who have worked at Telstra, as I have on two separate occasions for different consulting firms, know that while the pack of cards may have had some Blu-tack added in the past 3-4 years there is still an enormous amount of work to be done to provide a quality, modern network to cover this vast land.

Around mid August the new CEO of Telstra, Sol Trujilo delivered a comprehensive document to the government broadly discussing Telstra’s position. The Howard government introduced legislation for the full sale of Telstra into Parliament in the first week of September. Later that same week the document the government had in it’s possession for a number of weeks was leaked to the opposition.

So let’s assume that you are a 51% shareholder in a public company where you held no office and you receive information that could be derogatory to the value of the company. You do not disclose this information and put your 51% up for sale. At some point it comes public that you had information pertinent to the sale and did not disclose it. Very obviously you would be in a Martha Stewart of a pickle. Very recently Steve Vizard, a high profile ex Director of Telstra, was heavily fined, barred from being a Director of company for some time, and publicly humiliated for making trades based on information he received as a Telstra Director before that information was made public. Rene Rivkin, flamboyant stock market ‘player’ was sentenced to jail for similar yet this government, a 51% shareholder holding no office in the company, has declared that it was not their responsibility to disclose the information. There seems to be 3 separate set of rules there. If you are opinionated and flamboyant you go to jail, if you are high profile and popular you get a fine and if you are the Australian government you seem to above those laws altogether?

It would be plain ole’ insider trading if it were you or me.