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The incoming CEO of a European Union-based sports team bought shares in the publicly listed club before his new role was announced, sparking accusations of insider trading. Although the CEO claimed that he had yet to agree to join the team when he bought the shares, he was suspended and eventually had to step down from the role. The matter caused an internal rift within the club, with the prospect of an investigation by the country’s regulator hanging over operations.
This anonymised case study underlines the importance of creating a culture of compliance, with senior leaders setting the standards for the entire organisation. When a CEO conducts themselves in a manner that elicits suspicion – whether they did or did not commit insider trading – it affects the entire business and can undermine internal compliance efforts as employees may feel that there are double standards over what behaviour is seen as acceptable.
The background
The sports team was looking for a new CEO to join its board and decided on an experienced director at a rival club. He was under contract to that team, but agreed to join the organisation once his term expired. The club set a date to announce its intention to appoint him to the role of chief executive.
However, a week before this announcement was due to take place, the prospective CEO purchased 17,000 shares in the company, which was listed on its country’s stock exchange. On learning that the new CEO had acted in this manner, the chairman of the supervisory board took external legal advice, which indicated that the purchase could amount to insider trading.
Insider trading
Insider trading involves individuals or entities basing investment decisions on non-public, specific, inside information that, if made public, would affect the value of the financial instrument in question. In this case, the appointment of a well-renowned industry figure as the CEO could be reasonably expected to move the organisation’s share price.
With the news of his appointment still being inside information when the prospective CEO bought the shares, it is likely that he would make significant gains on his investment following the public announcement. Other financial market participants would suggest this created an unfair advantage for the CEO, which is why insider trading is illegal under the EU’s Market Abuse Regulation.
What happened next?
The club’s supervisory board suspended the CEO just two weeks after he took up his role. However, the executive board supported him in maintaining a role within the company, despite acknowledging the “complexity” of the situation whereby an executive at a listed company was accused of insider trading.
The CEO denied insider trading, claiming he had bought his shares in small amounts over time, and that he had done so before he had agreed to join the club. He also stated that his purchases were a positive signal to the club that he was willing to take a financial risk by owning a stake in the company that would decrease in value if he was unsuccessful in his role. He also claimed that he would seek a judgement from the country’s regulator, although any investigation could take years to find a resolution.
In the absence of an official verdict on whether the CEO committed insider trading, he agreed to leave his post within the company and take up a role in the technical sporting side of the organisation.
Conclusion
The outcome of any regulatory investigation, in this case, is unlikely to be published soon, but the important lesson to learn is that those taking on senior management roles must be aware of the law surrounding the use of inside information. It is essential that they do not put themselves or the businesses for which they work in a position where it could be suspected that illegal activity has taken place. Ignorance of the law is not an excuse.
This case led to internal disputes that could have caused a detrimental effect on the performance of the team as the focus was pulled away onto internal matters.
It is essential that issuers create insider lists for every piece of inside information that arises, managing these lists in accordance with the obligations and the set standards outlined in MAR. This helps insiders understand what is required of them and aids investigators in understanding who had access to the information and when.
InsiderLog is trusted by more than 1,000 issuers and advisors to maintain compliance and keep lists in the required format. It also automates the process of reminding insiders to fill in their information on the list. Find out more about how InsiderLog can work for you.
