State the issue
Are Rod, Jane or Freddie guilty of insider dealing?
State the Law
Insider dealing is a criminal offence as defined by the Criminal Justice Act 1993. Anyone found guilty will face maximum prison sentence of 7 years and an unlimited fine.
In order to gain a conviction it must be proved that:
1 The person is an insider – that is someone who is directly or indirectly in receipt of inside information
2 That the person possessed inside information – that is defined as price sensitive information about specific securities that has not yet been disclosed
3 That the person dealt – this is to either buy/sell securities in order to make a gain or avoid a loss, or to encourage someone else to do this, or to disclose to someone who deals themselves Convictions for insider dealing are relatively rare as the burden of proof is so high and because the following defences are available:
·You would have bought/sold anyway
·You believed the information was publicly available
·You are a market maker acting in good faith
Apply the Law
Rod is an insider. He is the director of a company that has received price sensitive information that he used to make a personal profit of $250,000. Jane is merely carrying out instructions on behalf of Rod, acting as a market maker. Jane appears to have no knowledge that she is using inside information.
Freddie knows about the takeover offer and is therefore an insider, with inside information. However he has not yet disclosed anything specific to his wife so has not yet dealt.
Conclude
Rod could be found guilty of insider dealing and faces both a prison sentence and a fine.
Jane is not guilty of anything and therefore has no criminal liability.
Freddie is not currently guilty of insider dealing as he has not dealt. However should he disclose to his wife and either of them were to act upon this information before it is made public both would be guilty in the same way as Rod. |
