Unpublished price sensitive information and insider trading allegations upheld, with limited penalty reductions for delayed disclosure

Draft share purchase negotiations and related correspondence were treated as showing that a concrete board decision had been reached by 19 June 2009, so the information became unpublished price sensitive information from that date. The company was therefore required to keep the trading window closed and disclose the board decision within the prescribed time, and its failure to do so was treated as a regulatory breach. Insider trading allegations against directors, relatives and connected entities were upheld on the basis of surrounding circumstances, including linked dealings, trading immediately after UPSI arose, and the absence of a credible explanation for the source of information. Penalties were largely sustained, with limited reduction for disclosure-related delay and for one elderly appellant.

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Issues: (i) whether the unpublished price sensitive information came into existence from 19 June 2009 and whether the company failed to close the trading window and make timely disclosure of the board decision; (ii) whether the insider trading allegations against the directors, relatives and connected entities were proved on the basis of their dealings and the surrounding circumstances; (iii) whether the penalties imposed required interference or reduction.

Issue (i): whether the unpublished price sensitive information came into existence from 19 June 2009 and whether the company failed to close the trading window and make timely disclosure of the board decision

Analysis: The draft share purchase arrangement and the surrounding correspondence showed that the promoter-directors had reached a concrete decision by 19 June 2009, even though the draft contained blanks and the formal execution followed later. On that basis, the information was treated as UPSI from 19 June 2009. Once UPSI existed, the company was obliged to keep the trading window closed until the public announcement and to ensure disclosure of the board decision within the prescribed time. The failure to do so constituted a regulatory breach.

Conclusion: The existence of UPSI from 19 June 2009 was affirmed, and the company was held liable for non-closure of the trading window and delayed disclosure.

Issue (ii): whether the insider trading allegations against the directors, relatives and connected entities were proved on the basis of their dealings and the surrounding circumstances

Analysis: The decision-maker relied on the totality of circumstances, including the role of the director common to the target and acquirer, business and financial links with the trading group, the timing of trades beginning immediately after UPSI arose, and the absence of any convincing explanation for the source of the alleged market information. It was held that direct proof of transmission was not necessary where the surrounding circumstances unmistakably showed access to and use of UPSI. Trading by insiders during the UPSI period, whether by purchase or sale, was treated as prohibited conduct.

Conclusion: The insider trading charges against the concerned appellants were upheld.

Issue (iii): whether the penalties imposed required interference or reduction

Analysis: While the violations were sustained, the penalty for failure to disclose the board decision was considered excessive in the facts, and the delay was treated as warranting a proportional reduction. The penalty imposed on the elderly appellant was also considered harsh in light of the circumstances, though liability itself was maintained. For the remaining appellants, the penalties were found commensurate with the proven violations.

Conclusion: The penalty against the company under the disclosure-related provision was reduced, the penalty against the elderly appellant was reduced, and the penalties in the remaining appeals were sustained.

Final Conclusion: The common order substantially upheld the findings of regulatory breach and insider trading, while granting limited relief by reducing certain monetary penalties and dismissing the remaining appeals.

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