Much ink has been spilled, recently, on the subject of insider trading.
This follows the high profile legal standoff between a leading Irish Plc, Fyffes, and one of its former directors, Jim Flavin, founder of another high profile quoted company, DCC.
A succession of findings issued by the High Court, the Supreme Court, and most recently a High court Inspector, Bill Shipsey, may have left many in a state of some confusion.

The Supreme Court overturned the High Court’s not guilty verdict in the most significant insider trading case of recent years in November 2007.
It concluded that the High court erred in concluding that information in the possession of Jim Flavin, the Fyffes director accused of insider trading, was not price sensitive.

The case is of limited value in interpeting future insider dealing cases as the legislation  considered ( part V of the companies Act, 1990 ) no,longer applies to companies listed on the Irish stock exchange.
The relevant new regime is contained in the Market Abuse Regulations 2005 where the concept of the reasonable investor is introduced.

People may well be asking themselves the following questions : What is ‘ insider trading ‘ ?  Who are ‘ insiders’ and what constitutes ‘ inside information’  for legal purposes ?

The Americans have developed a wide body of rules to counter activities such as share tipping and the misuse of insider information, rules which Irish lawyers draw on when advising clients.
It is worth consulting the website of the US Securities & Exchange Commission for further details.

The following provisions in Irish law aim to combat the misuse of inside information by those involved in share dealings.

1. Part V of the Companies Act 1990.
This applies to companies listed on the Alternative Securities Market and Irish Enterprise Exchange ( IEX ) of the Irish Stock Exchange ( ISE )
2 . The European Market Abuse regulations .
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 The Financial Regulator, here, has issued rules aimed at combating ‘market abuse’.

Guidance is also provided by case law, much of it American.

When an offer for a listed company is considered, account must also be taken of :
the Irish Takeover Panel Act, 1997,  the EC Takeover Bids Directive, and ensuing Regulations, the Listings Rules and the Model Code of the stock exchange

The Market Abuse Directive stands out in importance. This radically alters the environment for listed companies.It requires prompt and fair disclosure of information to the public.
The Irish Stock Exchange provides for a wide range of sanctions where such disclosure is not provided.
The Financial Regulator may also publicly or privately issue cautions or reprimands, levy fines and issue directions disqualifying people from holding a position in a regulated financial services firm.
It may also compel the production of documents.

The four main components of ‘inside information are as follows :
- the information must be precise.
- it must not be available to the general public.
- the information must relate to the issuer of the securities.
- it must be price sensitive “in that if it disclosed generally, it is likely to have a significant effect on the price of the securities being traded.”

Market Manipulation is forbidden. This covers the spreading of information through the media, including the Internet, in a manner designed “to give false or misleading signals as to financial instruments.” While rumour, unless sufficiently precise, may not be insider information, the spreading of rumours may amount to market manipulation.
When there is press speculation, or rumour regarding a listed company, the company must consider whether a disclosure obligation arises.
A company is not required to respond to totally unfounded rumours.
The more accurate a rumour is, the more likely it is that there has been a breach of confidentiality and that disclosure is required .
Companies should take care in their dealings with analysts to make sure that their answers do not constitute inside information.

“Insiders” include the following :
-  management.
- shareholders.
- persons having access to the information through their employment or profession ( eg. lawyers, stockbrokers )
   People may also obtain the information criminally, by stealing the information, or by corrupting management / employees.

Lists of ‘insiders should be kept by listed companies. The takeover rules restrict people from dealing in securities on foot of sensitive information.

The 1990 Companies Act, requires disclosure of dealings in a company’s shares by directors, their spouses and children.
The Companies Acts deal with the question of connected parties.
where a person connected with one company obtains inside information about another company, particularly where some business relationship is contemplated between the two, it is unlawful for that person to deal in the other company’s securities.
It is also forbidden to get another person to deal in those securities.      

Case Law and regulator activity.

The only recent Irish decision re Insider trading is in the Fyffe decisions ( High Court, Supreme Court and recent report of Inspector, Bill Shipsey ).
One prosecution has been taken under the Companies Act, 1990.
This is the case of the DPP v Byrnes. The Director of Public Prosecutions accepted that the activity had to be intentional. The Judge stated that the DPP would have to prove that the defendant not only knew that he was dealing, but that he intended to make an improper profit from those dealings.
In Britain, the Financial Services Authority has come under fire for doing too little to halt insider trading. However, last year, it levied a record number of fines and it has just fined a Turkish oil exploration manager almost £1m after he was convicted of insider trading in the shares of a London stock exchange listed company, Heritage Oil plc.
He escaped criminal prosecution after the court ruled that he had come forward voluntarily and cooperated with the authorities.
legal consequences of Insider Trading :

Under the Companies Act, where still relevant, a person is liable to criminal and civil penalties.
A person who suffers loss as a result of insider trading can take a civil action agaisnt the offender.

Under the regulations, inisder trading offences may be prosecuted by the Central Bank.

On summary conviction : up to €5,000, and/or 12 months in prison.
On indictment :  Up to €10,000 and / or ten years in prison.
Liability is strict. No intent to defraud required.

If you have concerns about a particular situation, it would be best to consult your legal advisers.

Written by Kyran Fitzgerald