Insider dealing

Introduction

The value of a share reflects the profitability and future prospects of a company. This type of information is usually only available to a prospective purchaser after it has been made available publicly. However, if a prospective purchaser could gain access to such information before it was made public, he could anticipate which way the price was likely to move and thereby make a profit. This is known as 'insider dealing'. Insider dealing has been made a criminal offence as it is perceived to undermine the integrity of the stock market.

Legislation

Insider dealing is a crime under part V of the Criminal Justice Act 1993.

The offences

The Criminal Justice Act 1993 sets out the three distinct offences in s52.

An individual will be guilty of insider dealing if they have information as an insider and:

• they deal in price-affected securities on the basis of that information
• they encourage another person to deal in price-affected securities in relation to that information
• they disclose the information to anyone other than in the proper performance of their employment, office or profession.

Dealing

Dealing is defined in s55 as acquiring or disposing of securities, whether as a principal or agent, or agreeing to acquire securities.

Inside information

S56 defines inside information as information which:

• relates to particular securities or to a particular issuer of securities
• is specific or precise
• has not been made public
• if made public would be likely to have a significant effect on the price.

Insider

S57 states that a person has information as an insider only if they know that it is inside information and they have it from an inside source.

A person has information from an inside source if:

• he has it through being a director, employee or shareholder of an issuer of securities
• he has it through having access to information by virtue of his employment, office or profession.

Consequences

On summary conviction an individual found guilty of insider dealing is liable to a fine not exceeding the statutory maximum and/or a maximum of six months imprisonment.

On indictment the penalty is an unlimited fine and/or a maximum of seven years imprisonment.

If the individual concerned is a director, he is in breach of his fiduciary duty and may be liable to account to the company for any profit made.

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Tags:	Criminal Justice Act 2993