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The owner of an asset management company (hereafter referred to as Company A) admitted that both he and the business had committed insider dealing. As a result, both the individual and the organisation received substantial financial sanctions.
Although there was no direct evidence to show who had supplied the businessman with information relating to the performance of a luxury fashion brand (Company B), the timing of the transactions and historical links between him and Company B made a compelling case and led to the man’s admission.
This anonymous case study shows that both natural and legal persons can be found guilty of misusing inside information and that, even without a paper trail, authorities can build a successful prosecution for the crime of insider trading.
Background
The man in question and his brother sold a business (Company C) to Company B in the early 2010s, both leaving the board of Company C soon after. A few years later, the businessman launched an asset management company, Company A.
Over the course of nine days, Company A acquired shares in Company B in eight transactions through two financial firms, and the owner bought additional stock in three transactions over six days.
Later that month, Company B announced significant volume and organic growth and the businessman and Company A sold their shares the next day for a significant profit. The businessman’s capital gain amounted to nearly €300,000, with Company A making nearly €1.5 million.
The investigation
Authorities in Company B’s home country spotted the transactions and regarded them as suspicious. They launched an investigation into the background of the deals, establishing that it was likely insider dealing had occurred.
The suggestion was that the accused had somehow accessed specific, non-public information regarding Company B’s performance, knowing that, when released to the market, it would increase the value of Company B’s stock. This allowed him and Company A to purchase shares at the regular price and profit from the increase after the results were announced.
When questioned about the allegations, the businessman initially denied any wrongdoing. Despite having no evidence to show who provided the information to the accused and his business, prosecutors built the case on the basis of the timing of the transactions, their unusual nature, the lack of any explanation for their innocence and the connection that the businessman had with Company B through his former ownership of Company C.
The outcome
On his lawyer’s advice, the businessman admitted insider dealing and was sentenced to a suspended prison sentence of nine months. The judge handed him a personal fine of more than €1 million and Company A received a penalty of over €5 million.
This case shows that the potential sanctions for both individuals and organisations can be significant, demonstrating the importance with which authorities regard protecting the integrity of the markets.
There are no details about why the investigation did not manage to uncover the source of the information. However, we do know that one reason behind the Market Abuse Regulation’s requirement for issuers to create event-based insider lists for each piece of inside information narrows down the scope of this type of investigation, as anyone with access to that information is recorded and must acknowledge that they understand why they should not unlawfully distribute it to others.
How InsiderLog helps
An insider list can form a key element of evidence in an insider dealing investigation. In addition, issuers can face sanctions for failing to complete one in line with the required standards.
With InsiderLog, you can avoid these regulatory headaches and the hefty sanctions that come with them. InsiderLog provides a compliant template for your list and automates the process of informing your insiders of their duty to add their personal details and acknowledge their responsibilities. Request a demo for your business today.
References and further reading
- How to stay compliant with MAR and MiFID II
- The Market Abuse Regulation explained
- Behaviours that qualify as market abuse
- How to enable market abuse monitoring
- Why you need a market abuse policy
