The Week In Review (November 2–8, 2007): Internationalization and Insider Trading
European Office for the SEC
Two key focal points of the SEC converged last week: the internationalization of the markets and insider trading. Chairman Cox has taken a number initiatives on the international front, such as moving forward with the use of international accounting standards. This week the Financial Times reports that the SEC is considering a European office that would focus on diplomatic efforts. The office would represent the Commission’s point of view at overseas regulatory gatherings.
Opening such an office would be consistent with the increasingly international scope of the SEC’s cases, as well as its impact. Many of the large insider trading cases brought earlier this year involve trading through foreign accounts or from other countries. Those cases have, for example, involved trading in Pakistan, Hong Kong and the U.K. Frequently, they are brought with aid from foreign regulators.
At the same time, according to the FT, the SEC has a growing impact on European business. According to one survey of European companies, the SEC was listed as the worst possible option when regulatory entanglements were considered. A significant percentage of companies reporting that an SEC enforcement action can be very damaging. The findings of this survey were amplified by those from another which reported that 23% of the European companies surveyed had been contacted by the SEC in the last twelve months. The SEC Looks Abroad, Nov. 8, 2007, FT.com.
Another Insider Trading Case
The SEC also continued to bring insider trading cases at home. On November 2, 2007, the Commission filed an insider trading case against a former scientist of Invitrogen Corporation. According to the complaint, Harry Yim obtained non-public information about the company’s poor financial results at a company meeting. Prior to the public announcement of that information, Mr. Yim sold shares thereby avoiding about $79,000 in losses. The case is currently in litigation. SEC v. Yim, Case No. 07 CV 2065 (S.D. Ca.). The Commission’s Litigation Release can be seen here.
Helsinki Judge Rules For Defendants
Prosecutors lost a significant criminal securities case last week, when a judge in Helsinki concluded that sixteen former managers of internet service provider Jippii (now Saunalahti) were not guilty of insider trading and stock market manipulation charges. The judge also ordered the government to reimburse the defendants’ court costs of EUR 1.5 million, a sum which is primarily attorneys’ fees.
The government had charged CEO Harri Hohannesdahl and Board Chairman Ilpo Kuokkanen, two board members and twelve others in the case. On the insider trading charges, the court concluded that Mr. Johannesdahl did not have insider information linked with the cancellation of a share issue by the company. As to the stock manipulation charges, the court concluded that the defendants did not give out false or misleading information deliberately or out of aggravated neglect. The prosecution, which had demanded prison sentences, vowed to appeal. There is news coverage on that case here.
Tighter Insider Trading Rules In Taiwan
Insider trading was also a focal point in Taiwan last week. The Cabinet there approved a set of revisions to the Securities Transaction Law which tightened rules against insider trading. If the changes are ratified by the Legislative Yuam at the current session, it will be put into practice on January 1, 2009. There is further news coverage on the Chinapots.com website here.
Hedge Funds Told To Tighten Procedures
Finally, the Managed Funds Association, the main U.S. lobbying group for the hedge fund industry, called for tighter internal rules for valuing securities and preventing insider trading. This report comes at a time when market regulators around the world are focusing on insider trading and the SEC is bringing an increasing number of cases in the area and against hedge funds.