Insider Trading – A Key Focus Around The Globe
Insider trading has long been a key focus of SEC enforcement. It has also become an important priority for market regulators around the world. Earlier this year, the FSA in the UK brought its first criminal insider trading case as discussed here. Now, the European Commission has launched a review of its insider trading directive and the Monetary Authority of Singapore (MAS) has brought its first civil suit based on allegations of insider trading.
The European Commission, in commencing a review of its directive on insider trading, has called for evidence which will “contribute to the intended review of the Market Abuse Directive by the Commission. In this review the Commission services will look, on the one hand, at the possibilities of simplification and burden reduction and, on the other hand, at ensuring greater effectiveness of the MAD in order to respond adequately to any deficiencies or risks” from the current financial crisis.
The review, initiated on April 22, 2009, is seeking evidence on issues which include the definition of inside information, prohibitions of insider dealing, new tools for helping detect suspicious transactions and the reporting of suspicious transactions.
Earlier this month, MAS filed suit against Kevin Lew Chee Fai, former general manager of enterprise risk management at WBI Corporation. Previously, MAS had imposed fines in inside trading cases where the defendant admitted the action.
The action against Mr. Lew is its first litigated insider trading case. In the case, Mr. Lew is alleged to have sold a total of 90,000 shares of WBL at $4.98 per share on July 4, 2007. The suit claims that Mr. Lew avoided a loss of $27,000.
Mr. Lew is alleged to have obtained price sensitive or inside information two days before his July 4 trade at a group management council meeting he attended. There, the internal forecasts regarding the financial results of the company for the third quarter of its fiscal 2007 for the period ended June 30, 2007 were discussed. In those forecasts, the group was projecting a quarterly net loss and impairment costs on its Thai subsidiary, Wearnes Precision Thailand Ltd. At the conclusion of the meeting, the secretary of WBI informed Mr. Lew that the information was price sensitive.
One month after the meeting, WBL announced a third quarter net loss of $27.3 million. The results were adversely affected by impairment of $26.6 million on assets related to its precision manufacturing business in Thailand.
In defense of his actions, Mr. Lew claims that the information obtained at the July 2 meeting was not price sensitive and thus its use did not violate SFA 218(2a). That section prohibits a person in possession of confidential price-sensitive information concerning a corporation to which he is connected from trading in the securities of that company. Here, Mr. Lew claims that the information from the meeting was very preliminary. The case is pending in court.
Insider Trading Seminar
On April 29, 2009 at noon, the ABA will sponsor a live program in Washington, D.C., which will also be webcast nationally on insider trading. The program features speakers from the SEC, DOJ, FINRA, NYSE Regulation and the private sector who will discuss current enforcement efforts in the area as well as practical compliance steps.