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PR Newswire
03-07-2014, 11:10 AM
Source : Straits Times
Date : 30 Jun 2014
Author : Goh Eng Yeow
Making it easier to trace leaks back to the offenders may be a good deterrent
THE oft-heard complaints from investors that certain insiders get a heads-up about a big merger and acquisition (M&A) and try to cash in have become especially shrill in recent months.
The grumbles come in the wake of buyouts launched by controlling shareholders who want to secure 100 per cent of their companies by buying out minority investors.
Traders complain that there is often a hefty increase in the stock prices before news of such deals finally breaks. They argue that such unusual price movements offer sufficient indication that some people could be profiting illegally from information that has been withheld from the rest of the investing public.
To its credit, the Singapore Exchange (SGX) has tried to step up vigilance by pressing listed companies to offer a more detailed explanation whenever price movements or trading volumes appear to be out of the ordinary.
Companies that fail to come up with a satisfactory explanation get slapped with a "trade with caution" (TWC) notification, which serves to remind investors to be careful about trading the shares.
However, the large number of TWC notices issued since March has prompted investors to ask if their effectiveness as red flags is wearing thin and to wonder whether the SGX should exercise greater care when issuing its alerts.
Few investors are aware that apart from issuing TWC notices, the SGX has also adopted another tool to try to stop the leakage of non-public information. It now requires a company to keep it informed of any proposal that could result in a takeover or very substantial corporate transaction. This practice is in line with those followed in markets such as London and Oslo.
More importantly, the SGX wants the company to keep a list of "privy persons" - those involved in the deal - after it has been informed of the move. In this way, it hopes to trace how any leak of information arose if there are complaints about insider trading.
It is too early to tell if such a deterrent measure will succeed in stamping out insider trading, which has been a scourge in other markets such as the United States, where a recent study showed that one-quarter of the M&A deals examined had been marked by some trading irregularities before they were announced.
However, the fact that the rule is in the book might make a company insider think twice about leaking any non-public information or about profiting from the information as the requirement makes it easier to trace the source of the leak.
And the consequences of being caught can be huge. While no similar case exists in Singapore, there have been instances, especially in the US, of corporate titans who paid a heavy price for succumbing to greed.
Take disgraced former Goldman Sachs director and McKinsey consultant Rajat Kumar Gupta. Once as rich as Croesus, with a net worth of more than US$100 million (S$125 million), he has just begun a two-year sentence for insider trading.
He was believed to have spent over US$50 million in legal fees, appealing against his sentence all the way to the US Supreme Court. Not only were his appeals rebuffed, but the courts also slapped him with nearly US$25 million in criminal fines and civil penalties. He was also reportedly fighting to save many of his US properties from being seized.
His downfall goes to show that insider trading does not pay - his folly has brought him to the brink of financial ruin.
Perhaps the greatest benefit of requiring a company to maintain a "privy list" and to produce it to the SGX if the need arises is that lesser minions such as professionals involved in the deal would stay on their toes, given the stiff price they might have to pay for their misdeeds if they are caught.
For many of them, the loss of income and the shame they could bring to themselves and their families would far outweigh any profit they might reap from trading on inside information.
In one high-profile case in the US last year, Scott London, a former accountant who was jailed for insider trading, was quoted as saying that if he had realised the impact his crime would have on unintended victims such as his family and his friends, he would not have crossed the line between right and wrong. He also lost his high-paying job at global audit firm KPMG, where he was a partner.
That could be the intended effect of the SGX's deterrent measure. While the intent of this column is not to discuss the psychology of insider trading wrongdoers, having a privy list would help keep potential offenders from going down the same slippery slope that London did, by prompting them to weigh the consequences of their actions against the profits they might reap.
In a nutshell, there will always be cheaters. The issue is how to stop them from succumbing to their weaknesses. For potential offenders considering insider trading, flagging the possibility that they could be traced makes a good deterrent.
http://www.singaporelawwatch.sg/slw/head...ading.html
Date : 30 Jun 2014
Author : Goh Eng Yeow
Making it easier to trace leaks back to the offenders may be a good deterrent
THE oft-heard complaints from investors that certain insiders get a heads-up about a big merger and acquisition (M&A) and try to cash in have become especially shrill in recent months.
The grumbles come in the wake of buyouts launched by controlling shareholders who want to secure 100 per cent of their companies by buying out minority investors.
Traders complain that there is often a hefty increase in the stock prices before news of such deals finally breaks. They argue that such unusual price movements offer sufficient indication that some people could be profiting illegally from information that has been withheld from the rest of the investing public.
To its credit, the Singapore Exchange (SGX) has tried to step up vigilance by pressing listed companies to offer a more detailed explanation whenever price movements or trading volumes appear to be out of the ordinary.
Companies that fail to come up with a satisfactory explanation get slapped with a "trade with caution" (TWC) notification, which serves to remind investors to be careful about trading the shares.
However, the large number of TWC notices issued since March has prompted investors to ask if their effectiveness as red flags is wearing thin and to wonder whether the SGX should exercise greater care when issuing its alerts.
Few investors are aware that apart from issuing TWC notices, the SGX has also adopted another tool to try to stop the leakage of non-public information. It now requires a company to keep it informed of any proposal that could result in a takeover or very substantial corporate transaction. This practice is in line with those followed in markets such as London and Oslo.
More importantly, the SGX wants the company to keep a list of "privy persons" - those involved in the deal - after it has been informed of the move. In this way, it hopes to trace how any leak of information arose if there are complaints about insider trading.
It is too early to tell if such a deterrent measure will succeed in stamping out insider trading, which has been a scourge in other markets such as the United States, where a recent study showed that one-quarter of the M&A deals examined had been marked by some trading irregularities before they were announced.
However, the fact that the rule is in the book might make a company insider think twice about leaking any non-public information or about profiting from the information as the requirement makes it easier to trace the source of the leak.
And the consequences of being caught can be huge. While no similar case exists in Singapore, there have been instances, especially in the US, of corporate titans who paid a heavy price for succumbing to greed.
Take disgraced former Goldman Sachs director and McKinsey consultant Rajat Kumar Gupta. Once as rich as Croesus, with a net worth of more than US$100 million (S$125 million), he has just begun a two-year sentence for insider trading.
He was believed to have spent over US$50 million in legal fees, appealing against his sentence all the way to the US Supreme Court. Not only were his appeals rebuffed, but the courts also slapped him with nearly US$25 million in criminal fines and civil penalties. He was also reportedly fighting to save many of his US properties from being seized.
His downfall goes to show that insider trading does not pay - his folly has brought him to the brink of financial ruin.
Perhaps the greatest benefit of requiring a company to maintain a "privy list" and to produce it to the SGX if the need arises is that lesser minions such as professionals involved in the deal would stay on their toes, given the stiff price they might have to pay for their misdeeds if they are caught.
For many of them, the loss of income and the shame they could bring to themselves and their families would far outweigh any profit they might reap from trading on inside information.
In one high-profile case in the US last year, Scott London, a former accountant who was jailed for insider trading, was quoted as saying that if he had realised the impact his crime would have on unintended victims such as his family and his friends, he would not have crossed the line between right and wrong. He also lost his high-paying job at global audit firm KPMG, where he was a partner.
That could be the intended effect of the SGX's deterrent measure. While the intent of this column is not to discuss the psychology of insider trading wrongdoers, having a privy list would help keep potential offenders from going down the same slippery slope that London did, by prompting them to weigh the consequences of their actions against the profits they might reap.
In a nutshell, there will always be cheaters. The issue is how to stop them from succumbing to their weaknesses. For potential offenders considering insider trading, flagging the possibility that they could be traced makes a good deterrent.
http://www.singaporelawwatch.sg/slw/head...ading.html
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
