Insider trading: regulatory settlements

The Securities Commission published on its website some regulatory settlements.

About the first issue (The Malaysian Insider issuing an apology) we wrote already before.

The second and third issue deal with insider trading in shares of Worldwide and Orisoft Technology.

I have three comments about the settlements:

[1] Again the enforcement reflects a settlement "without admission or denial of liability". I find that very weak, why do the authorities (SC and BM) almost always settle alleged insider trading cases with a settlement? It leaves an unsatisfactory taste. I wrote before about this same issue.

[2] Another issue is regarding this statement: "In accordance with the provisions of section 90A(7)) of the SIA, the amount recovered from Lew @ Leow Muy Lai will be used first to reimburse the SC for all costs of investigations and proceedings. Any remaining amount, if available, will be used to compensate the sellers who sold their Worldwide shares before the information became generally available."

Interestingly, in Hong Kong there is a settlement for insider trading, the amount involved is HKD 23.9 million, the verdict can be found here. David Webb comments on the settlement:


"This is the first restoration order for insider dealing. We question the fairness of the allocation though. 297 sellers whose orders just happened to be matched with his, during an 11-week period in which he bought 26.7m shares, will get about $0.90 per share - even though some of them may have been net buyers during the period. The whole market was unaware of the good news, and anyone who sold shares during that period, when volume was 1844m shares, but not to Mr Du, gets nothing. That turns the payout into a lottery with about a 1 in 69 chance of success."


As usual I have to agree with David Webb. One essential element of trading is that you don't know with whom you are trading. Therefore it is rather strange to treat some people who sold shares differently from other people who sold shares of the same company on the same day, both groups of people not knowing what was going on.

[3] The trading on Bursa happened in 2006, 2007 and 2008, in other words between five and seven years ago. Why do these cases take so long time, especially when they only lead to "without admission or denial of liability"? I really think enforcement should be much faster, "justice delayed is justice denied".

I have to admit, the Hong Kong case also happened in 2007, six years ago. But there court cases (both civil and criminal) were conducted, those take a lot of time and effort. In addition to that, I like to draw the readers attention not only to the high fine in Hong Kong, but also to the fact that a jail sentence of seven years was meted out, something that has never happened in Malaysia in cases of insider trading. According to the article mentioned here, not a single person so far has been successfully convicted of insider trading in Malaysia:


"Sreesanthan is only the second person to be charged with insider trading by the Securities Commission. In 1996, the commission had pressed criminal charges against Kim Hin Industry managing director Chua Seng Huat for allegedly using confidential information to sell company shares and gain profits for its holding company. But the Kuching Sessions Court later acquitted him in the grounds that the prosecution had failed to prove beyond reasonable doubt that he had the relevant information at the time."


And that is a bad statistic of which Malaysia should not be proud at all.