10 Sid is a director of two listed public companies in which he has substantial shareholdings: Trend plc and Umber plc.
The annual reports of both Trend plc and Umber plc have just been drawn up although not yet disclosed. They show
that Trend plc has made a surprisingly big loss and that Umber plc has made an equally surprising big profit. On the
basis of this information Sid sold his shares in Trend plc and bought shares in Umber plc. He also advised his brother
to buy shares in Umber plc.
Vic who is also a shareholder in both companies sold a significant number of shares in Umber plc only the day before
its annual report was published.
Required:
(a) Analyse the above scenario from the perspective of the law relating to insider dealing; (8 marks)
(b) In particular advise Vic as to his position. (2 marks)
(10 marks) 10 (a) Insider dealing is a crime under part V of the Criminal Justice Act 1993 (CJA).
Section 52 of the CJA sets out the three distinct offences of insider dealing:
(i) an individual is guilty of insider dealing if they have information as an insider and deal in price-affected securities on
the basis of that information.
(ii) an individual who has information as an insider will also be guilty of insider dealing if they encourage another person
to deal in price-affected securities in relation to that information.
(iii) an individual who has information as an insider will also be guilty of insider dealing if they disclose it to anyone other
than in the proper performance of their employment, office or profession.
The CJA goes on to explain the meaning of some of the above terms. Thus s.54 defines what securities are covered by the
legislation and these are set out in the second Schedule to the Act and specifically includes shares and debentures.
Dealing is defined in s.55, amongst other things, as acquiring or disposing of securities, whether as a principal or agent, or
agreeing to acquire securities.
Section 56 defines ‘inside information’ as:
(i) relating to particular securities,
(ii) being specific or precise,
(iii) not having been made public and
(iv) being likely to have a significant effect on the price of the securities. Section 57 states that a person has information as an insider only if they know it is inside information and they have it from
an inside source. The section then goes on to consider what might be described as primary and secondary insiders. The first
category of primary insiders covers those who get the inside information directly through either:
(i) being a director, employee or shareholder of an issuer of securities; or
(ii) having access to the information by virtue of their employment, office or profession.
On summary conviction an individual found guilty of insider dealing is liable to a fine not exceeding the statutory maximum
and/or maximum of six months imprisonment. On indictment the penalty is an unlimited fine and/or a maximum of seven
years imprisonment.
Applying the general law to the problem scenario, one can conclude as follows:
Sid is an ‘insider’ as he receives inside information from his position as a director in both Trend plc and Umber plc. The
information fulfils the requirements for ‘inside information’ as it relates to: particular securities, the shares in both companies;
is specific, in that it relates to the level of their profits; has not been made public; and is likely to have a significant effect on
the price of their securities. On that basis Sid is clearly guilty of an offence under s.52 in selling his shares in Trend plc to
avoid a loss and buying shares in Umber plc to make a profit.
He is also guilty of a further offence when he advised his brother to buy shares in Umber plc. However, his brother has not
committed any offence as he did not receive any specific information from Sid.
(b) There is little that Vic can do in relation to Sid’s insider dealing. There was no relationship between the two and in any case
Vic sold his shares voluntarily on the stock market and consequently can take no action against Sid or his brother. However,
the companies may take action against Sid for breaching his fiduciary duty. | 
发表于 2008-10-11 13:23
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