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2021 MarsdenLR 126
Insider trading violated laws when an individual, with material non-public information, trades shares without public disclosure, establishing both liability and monetary penalties.
Headnote:(A) Securities Industry Act 1983 - Section 89E(2)(a) - Insider trading - Defendant purchased shares in Worldwide Holdings Berhad while possessing material non-public information regarding proposed privatisation by PKNS - Found liable for breaching insider trading laws. (Paras 18-20, 69, 200)
(B) Mens Rea - Knowledge that information was not generally available - Evidence established that the defendant knew, or ought to have known, that the information was confidential and material. (Paras 129-130)
(C) Material Information - Information regarding privatisation was material due to its anticipated impact on share prices, evidenced by market reactions post-announcement. (Paras 74, 155-156)
Facts of the case: The defendant, a corporate lawyer, bought shares in Worldwide Holdings while privatisation plans by PKNS were in discussions, leading to increased share prices after the public announcement. (Paras 1-115)
Findings of Court: The plaintiff proved insider trading, and the defendant knew the information he traded on was non-public and material. (Paras 18-20, 69, 200)
Issues: The key issues included whether the defendant possessed insider information, if he understood it was not publicly available, and whether the information was material. (Paras 120-121)
Ratio Decidendi: The court ruled that mere possession of non-public information combined with knowledge of its confidentiality suffices for establishing liability for insider trading in Malaysia. (Paras 176-178)
Result: Defendant found liable, ordered to pay RM2,989,402 and barred from directorship for ten years. (Paras 200-200)
JUDGMENT
Introduction
[1] The plaintiff in this case, the Securities Commission Malaysia, sought to make the defendant liable in a civil action for insider trading.
[2] The defendant, Mr Sreesanthan Eliathamby, is a corporate lawyer of some considerable repute. At the material time, he was a partner of the law firm of Kadir Andri & Partners. He also headed its corporate department.
[3] In March 2006, CIMB Investment Bank Berhad (referred to here as "CIMB") came up with a plan for the privatisation of Worldwide Holdings Berhad.
[4] At the time, Worldwide Holdings Berhad was a public company listed on Bursa Malaysia Securities Berhad, the Malaysian stock exchange. Approximately 51% of its shares were held by Perbadanan Kemajuan Negeri Selangor ("PKNS"), the state development agency for Selangor. PKNS is chaired by the Menteri Besar of Selangor. Worldwide Holdings Berhad was the only listed subsidiary of PKNS.
[5] On 5 May 2006, representatives of CIMB met with the defendant to obtain advice on legal aspects of the proposed privatisation. Among the matters discussed was the manner in which the privatisation would take place, whether by way of a scheme of arrangement under s 176 of the Companies Act 1965, or by way of a selective capital reduction.
[6] About a month later, on 7 June 2006, the representatives of CIMB met with the Menteri Besar to present their plan for the proposed privatisation.
[7] Around this time, between 6 to 8 June 2006, several telephone conferences took place between the CIMB representatives and the defendant.
[8] It was the Commission's case that, during these interactions between the CIMB personnel and the defendant, the defendant came into possession of information that PKNS was proposing to privatise its listed subsidiary, and that because Worldwide Holdings Berhad was the only listed subsidiary of PKNS, the defendant had deduced the identity of Worldwide Holdings Berhad.
[9] The defendant acquired 600,000 shares in Worldwide Holdings Berhad in June and July 2006. These shares were acquired in two tranches:
(i) 200,000 shares were acquired between 7 June 206 and 13 June 2006, at the purchase price per share of between RM1.95 and RM1.96; and
(ii) 400,000 shares were acquired between 29 June 206 and 11 July 2006 at the purchase price per share of between RM2.1242 and RM2.2415.
[10] On 23 June 2006, Kadir Andri & Partners received instructions from CIMB to commence the preparation of the transaction documentation for the proposed privatisation and to prepare the documentation required for the court application in respect of the scheme of arrangement.
[11] Between 16 June 206 and 27 June 2006, the defendant was overseas and away from the office.
[12] On 19 August 2006, the daily newspaper the Star published an article that stated that Worldwide Holdings Berhad was to be privatised by PKNS.
[13] Trading in the shares of Worldwide Holdings Berhad was suspended on 22 August 2006. A day later, on 23 August 2006, the board of directors of Worldwide Holdings Berhad announced that it had received a letter from PKNS stating its intention to privatise it by way of a scheme of arrangement.
[14] Prior to the suspension of trading, the shares in Worldwide Holdings Berhad were traded with a closing price of RM2.54 per share on 21 August 2006. The price at which PKNS offered to buy out the minority shareholders in the company was RM3.50, as disclosed in the announcement of 23 August 2006. When trading in the shares of Worldwide Holdings Berhad resumed on 25 August 2006, the opening price for the shares was RM3.22.
[15] The defendant sold his Worldwide shares in September 2006, from which a gain of approximately RM678,134 was recorded (before transaction costs).
Issues
[16] The Securities Commission contended that the defendant contravened the insider trading provisions in s 89E(2)(a) of the Securities Industry Act 1983 by purchasing the Worldwide shares while in possession of material non-publ
