Trends In Securities Enforcement: FCPA and Insider Trading
Key trends in securities enforcement include increased emphasis in FCPA enforcement, as well as the growing global war on insider trading. Cameron International disclosed yesterday, for example, that the SEC is investigating whether the company may have violated the anti-bribery provisions of the FCPA. This inquiry follows the initiation of a DOJ probe into that issue and an internal investigation by the company.
While the SEC has long emphasized the books and records provisions of the FCPA, in recent years, the agency has also focused on the anti-bribery provisions. That trend continues. Recently, the SEC and DOJ have aggressively pursued investigations and enforcement actions in this area. These efforts are part of an important trend in this area of securities enforcement which will be the subject of a series later this year which will review the provisions of both the anti-bribery sections of the statutes as well as the books and records and internal control provisions. The series will analyze recent enforcement trends in this area. These trends are important to any issuer in view of the broad reach of the books and records and internal control provisions of the FCPA. Similarly, trends in the enforcement of the anti-bribery sections are of critical importance to companies operating abroad.
Another key enforcement trend deals with the world–wide emphasis on insider trading. Last year, the SEC brought a number of important cases, some of which may be the most significant since the late 1980’s and many of which are still in litigation. Those cases have been analyzed in our series which began here.
Issuers doing business abroad should also be aware of increased enforcement in this area in other countries. Recent enforcement activity abroad includes the following overseas cases.
U.K. The Financial Services Authority in the U.K., for example, recently brought its first criminal insider trading case. The defendants are Christopher McQuoid, former general counsel of TTP Communications, a telecom company, and his father-in-law, James William Melbourne. The charges allege that the defendants used inside information to trade prior to the announcement of a bid by Motorola for TTP in June 2006. Both men appeared at the City of London magistrates Court. The case has been adjourned until February 19, 2008.
Chile. Chile’s SVS securities regulator is charging nine people for insider trading. The charges are based on trading in advance of the merger of grocer Distribucion y Servicio D&S S.A. (DYS) and department store retailer SACI Falabella (FALABELLA.SN). D&S shares rose 7% the day before the announcement of the transaction and another 8.2% following the press release about the transaction.
Sweden. In 2007, the Swedish Financial Supervisory Authority received 170 reports of suspected insider trading. The prior, year the regulator only received 79 reports. This trend may stem in part from the fact that since 2005 businesses have been obligated to report any suspected cases of insider trading and market abuse.
Germany. Prosecutors are investigating whether insiders were selling when shares in Gildemeister plunged by 25% last week. The probe reportedly focuses on sales made on Tuesday during police raids the company during an inquiry of the Chief Executive on suspicion of breach of trust, bribery and tax evasion. Company shares reportedly sold off rapidly and in high volume during the non-public raid according to a Reuters report.
Japan. Three NHK employees are under investigation by the Securities and Exchange Surveillance Commission on suspicion of insider trading. Although two of the three men have admitted obtaining confidential company information from an internal news editing system prior to its release, all three have denied engaging in insider trading.
Australia. According to a study done by Keith Neilsen of The Insider Trader, directors of listed companies have significantly out-performed the market when trading shares of their own companies. Mr. Neilsen reportedly analyzed 6,837 trades over four years from September 2003 to September 2007. According to his finding, the overall performance of the trades was 100% bigger than the gain on the All Ordinaries Index. Directors out -erformed the market by a factor of two. Directors of small cap companies had the highest returns. Mr. Neilsen’s study is reminiscent of academic studies which touched off the option backdating probes in this country, as well as the current scrutiny being given Rule 10b5-1 plans by the SEC enforcement staff.