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- 1. INSIDER TRADING REGULATIONS IN U.S. AND A PROPOSAL FOR TURKEY
- 28. WHAT IF FAMOUS CASES HAPPENED IN TURKEY? ? √ ? The attorney, after having learned of the law firm’s client’s planned tender offer , purchased call options in the target company prior to the announcement of the tender offer. O'Hagan √ In Turkey this case would be interpreted as manipulation. A columnist of the Wall Street Journal traded the securities he wrote about and in turn gained a profit. Carpenter √ √ √ A company’s former official’s selective disclosure of insider information to an analyst giving an unfair advantage to the analyst and the analyst’s clients over the public generally Dirks ? √ ? A financial printer deduced the names of the target companies in takeover bids from the documents he printed. He purchased the target company’s securities before the announcement of bids and sold them after the bids, thus making a profit. Chiarella √ √ √ Insiders of a mine company purchased company stock on the open market with knowledge of a valuable mineral find that had not been publicly announced and made a considerable profit after the announcement. Texas Gulf Sulphur √ √ √ A registered broker-dealer directed his customers to liquidate their holdings in Curtis-Wright stock because he had advance knowledge of a dividend cut . Cady Roberts Co. Turkey? Gain/Loss Materiality Subject Case Conviction in Turkey
- 30. THANK YOU SENEM DEMIRKAN
Notas del editor
- We will see that insiders do not have from inside the firm. The term insider encompasses may people ranging from a psychiatrist or a financial printer. ( Psychiatrist case is United States v. Willis. )
- The European Council adopted the Directive on insider dealing and market manipulation (market abuse) on 3rd December 2002. The Directive is due to be implemented by Member States of its publication in the EU’s Official Journal.
- However none of these views make sense. First, as Prof. Loss and Seligman noted, wage market already compensates hard worker and those who do not contribute to the company may also benefit from insider trading. Scienter is required to prove insider trading and investigations are difficult. Most of the illegal activity remains undetected. Maybe for equities trading you can say that the transaction anyway would occur. However for options for example, these information have crucial importance. You can not ignore them. Professors Loss and Seligman found that insider trading does not have any significant effect on market price and does not make prices smoother It is very difficult and costly for companies to monitor and discipline insider trading.
- The purpose of §16 has two aspects According to § 16(a) these insiders file an initial report showing their holdings of all the issuer’s equity securities and if changes occur in their holdings they file a report within the first ten days of that month with the SEC and with the exchanges on which the securities are listed. §16(b) whether P and S or S and P of the issuer’s equity securities. If the issuer does not do so within 60 days, any shareholder can bring a suit against the corporate insider on behalf of the issuer. Statute of limitations is two years after the profit is realized. However short-swing profits are recoverable regardless of whether the insider actually traded on the basis of confidential information or even was in possession of any such information . Nonetheless, this conduct covered by §16(b) is not deemed to be unlawfu l and cannot cause any criminal liability or injunction of SEC.
- Once bunu soyle **** §17(a) of the Securities Act and §10(b) of the Exchange Act are the general anti-fraud provisions applicable to insider cases. Although both §17(a) and Rule 10b-5 prohibit the same type of conduct, Rule 10b-5 has a broader scope. Rule 10b-5 applies to both purchases and sales of securities, whereas §17(a) applies only to sales.
- unusually short and broad. There is no statutory definition of insider trading. It simply prohibits any person from doing any fraud in connection with any securities trading . The conduct should touch purchases and sales, so any decision to retain stock, although based on inside information, may not be considered under the scope of this Rule. The fraudulent act type is not specified in the rule and this interpretation is left to courts intentionally to provide flexibility in the application.
- These are , as we will see, are complementing each other.
- This fiduciary duty derives from common law where a company shareholder is a beneficiary of the insider’s fiduciary obligation. Corporate insiders breach a fiduciary duty only for a personal or economic benefit. Burada bu caselerden bahsetmek lazim.
- The duty may arise from a fiduciary relationship or from a relationship of trust or confidence. The traditional theory and the misappropriation theory are complementary. The traditional theory targets a corporate insider’s breach of duty to shareholders with whom the insider transacts; the misappropriation theory prohibits trading on the basis of nonpublic information by a corporate “outsider” in breach of a duty owed to the source of the information.
- The rule applies regardless of whether the security is exempt from 1933 or 1934 Act or not and regardless of whether the company is publicly or closely held. Use of instrumentalities of interstate commerce, such as phones, facsimiles, or the mails must be proved. A link between the fraud and the purchase or sale Transaction causation: in a face-to-face transaction between seller and purchaser the plaintiff’s reliance can be presumed from the materiality of the omissions. ‘fraud on the market’ theory for proving reliance, simply stating that the reliance requirement in a securities fraud action can be satisfied by a showing that the market price was affected by the misstatement or omission and the plaintiff’s injury is due to a purchase or sale at the then fraudulently induced market price. “loss causation” which provides the necessary connection between the challenged conduct and the plaintiff’s pecuniary loss. A plaintiff is required to prove that a defendant’s misstatement or misconduct was at least a “substantial factor” in causing a loss. As part of the Private Securities Litigation Reform Act of 1995. §21D(b)(4) of the 1934 Act now provides that loss causation is an element of a private law suit for securities fraud.
- During the 1960’s, there was a substantial increase in tender offer in U.S but there were no disclosure provisions applicable to tender offers. 1968, Congress adopted the Tender Offer and Takeover of the Williams Act amendments to the Exchange Act. §14-e is one of the Williams Act amendments and it includes general antifraud provision for all tender offers However it is also quite limited in scope, since (1) it does not apply until the offeror has taken substantial steps towards making the offer and (2) both prongs of the rule are limited to information relating to a tender offer.
- The SEC does not have authority to prosecute criminal actions against inside traders but it is authorized to ask the Justice Department a willful violation of Rule 10b-5 or 14e-3 is a felony that can be punished by a $1 million fine ($2.5 in the case of corporations) and up to 10 years in jail. The Insider Trading Sanctions Act (ITSA) of 1984 amended the Exchange Act by adding §21A . Since the SEC thus may seek both disgorgement and treble damages (civil penalty), an inside trader faces potential civil liability of up to four times the profit gained. The §21A penalty may be imposed on both traders and tippers and is payable into the Treasury. §21A applies only to transactions effected on an exchange or through a broker-dealer.
- At first, private enforcement has evolved solely from judicial implications, even though these rules do not explicitly permit any private lawsuits. . In 1988, Congress enacted the Insider Trading and Securities Fraud Enforcement Act (ITSFEA) which amended the Exchange Act by adding §20A. SEC to pay a bounty to informers of up to 10% of any penalty collected by the SEC.
- Section 15(F) requires that every registered broker dealer “establish, maintain and enforce written policies and procedures reasonably designed …. to prevent” violations of the provisions of the Exchange Act which prohibit insider trading and tipping,
- However, examples of long established capital markets show that development of capital markets is usually matched with new insider trading schemes and a need for better regulations against it. beginning in the early 1980s, transnational insider trading cases have become increasingly prominent. from both national and international aspects, it is necessary to establish very comprehensive rules against insider trading.
- The only difference is that CMB can only request telephone records through prosecutors and this procedure makes investigations longer.
- In the case of the repetition of the acts subject to the penalties determined in this Article, the penalties given shall be increased them by one half. In order to raise the penalties, execution of the previous penalty is not a condition. ”
- In US : civil proceedings of SEC, criminal proceedings of DJ and private actions. Why civil enforcement : extreme difficulty to prove insider trading. What is in the mind of the trader Direct evidence of insider trading is rare. Evidence is almost entirely circumstantial. You have to examine events like – meetings in restaurants, telephone calls, relationships between people, trading patterns This is why providing civil, as well as criminal, liability is vital to the insider trading program of SEC. Proving a purely circumstantial case is easier in the civil context, Where burden of proof shifts to defendant Subpoena -> to compel witnesses to testify or to produce books, records, and other evidence.
- On the other hand, a provision similar to the §16(a)’s public disclosure requirement exists in the Serial :VIII, No:20 “Communique on Principles Regarding Public Disclosure of Material Events” Article 3/H-a which states that: “ major shareholders, chairman, members of BOD, general directors, assistant general directors should publicly disclose when they own more than 1% of the corp. Capital. They have to send it in writing in detail to the Board and the Exchange, every month once this amount is reached. §16 does not make short-swing transactions unlawful Current public disclosure regulations of CMB are as effective as §16 even though they don’t require recovery of such profits, since the main aim of these regulations should be to deter insider trading. As opposed to SEC’s injunction, cease-or-desist, disgorgement, civil penalty powers, the only penalty available to CMB other than criminal ones is prohibition of trading Similar to SEC, CMB also is authorized by law to request the correction of misleading statements and disclosure of material information.
- 1) Are the non-public information mentioned in these cases able to affect the Value of the security? 2) Have the defendants gained a profit or avoided a loss from this insider trading? Insider trading most often occurs when the inside information involves unexpected events crucial to assessing a company’s value. . Information about tender offers unrelated to business developments ; rather, it is market information about the amount that some third party was willing to pay in the market for the issuer’s stock. Although Turkey’s insider trading implications have not evolved yet to include third party insider trading and the judicial implications of such cases have not been established, due to the provision of “with the aim of gaining benefit for himself/herself or for third parties ” the convictions would also include tippers who have not traded but acted with the aim of gaining benefit for third parties who gained profit or avoided loss as a result of insider trading conduct. Manipulation under Article/A-3 where people giving and disseminating misleading, false, deceiving information and news, make comments or do not disclose information that must be disclosed, will be punished like insider trading.
- Turkey’s regulatory system is much different than U.S. and providing CMB with civil action rights or more powerful subpoena power would not result as efficient as U.S. So I proposed more article based changes. This change will allow us to grasp all insider trading cases where the information would be considered important by a reasonable shareholder It will also be able to cover insider trading relate to tender offers. According to Article 47/A of CML,CMB can impose a pecuniary punishment of between 2 billion TL and 10 billion TL on real persons and legal entities if they act in violation of the regulations, standards and forms or general and special decisions made by the Board these fees are paid to the Investors’ Protection Fund. The amount of the fine may be stated as of up to three times profit gained or loss avoided against persons who violated Article 47/A-1 by trading in a security while in possession of material nonpublic information. Bounty : bounties to informants of up to 10% of the civil penalties recovered.
- Turkey’s regulatory system is much different than U.S. and providing CMB with civil action rights or more powerful subpoena power would not result as efficient as U.S. So I proposed more article based changes. This change will allow us to grasp all insider trading cases where the information would be considered important by a reasonable shareholder It will also be able to cover insider trading relate to tender offers. According to Article 47/A of CML,CMB can impose a pecuniary punishment of between 2 billion TL and 10 billion TL on real persons and legal entities if they act in violation of the regulations, standards and forms or general and special decisions made by the Board these fees are paid to the Investors’ Protection Fund. The amount of the fine may be stated as of up to three times profit gained or loss avoided against persons who violated Article 47/A-1 by trading in a security while in possession of material nonpublic information. Bounty : bounties to informants of up to 10% of the civil penalties recovered.