Legal Updates

One may not purchase shares of a public company even if the insider information does not come directly from the company

December 2, 2018
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A consultant of a shareholder in a public company purchased shares of the company just before the announcement of information about the intent of the control holder in the company to make a tender offer for all shares of the company, and sold them at a large profit shortly after the share price rose following the announcement. The consultant was charged with a criminal offense of using insider information, accusing that prior to the announcement, the company approached the said shareholder and asked it whether it was interested in participating in the tender offer, and that the consultant learnt from the shareholder of the insider information and used it.

The Court acquitted the consultant of the offence use of insider information after preferring his version that the purchase of the shares was not based on insider information but on market research, and that in the past he had already tried to acquire shares of the company and was unsuccessful due to scarce trading in the share. Insider information is any information about the company, which is not known to the public, and which has the potential to cause a significant change in the price of the company's security had it been known by the public. A person who uses insider information while being aware of the fact that the information received is insider, is committing a criminal offense. The definition of use is very broad and includes the sale, purchase or exchange of a security, subscription to a security, or an obligation to perform any of the above, whether the person doing it does it for his own benefit or for the benefit of another. Despite this, due to the circumstances of the specific case, the Court acquitted the consultant from the offenses of using insider information.