Revelations about corporate scandals and insider trading breaches are not particularly new. But the investigations of two listed companies last week for alleged insider trading indicates that both the financial and judicial authorities want to crack down on financial crimes while at the same time rebuilding the public's confidence in market order.
Both companies -- BenQ Corp, the nation's largest mobile phone maker, and Veutron Corp, a memory module and scanner manufacturing subsidiary of Powerchip Group -- denied the insider trading allegations and dismissed allegations that they had illegally sold shares ahead of the disclosure of massive losses.
They also claimed their heads -- Lee Kun-yao (
For the public interest, it is encouraging to see prosecutors and investigators once again show their determination to capture insider traders, showing the government's determination to promote good corporate governance and ethics. Investors should pay no attention to the unfounded rumors or political conspiracies said to lay behind the investigations and support a free and independent judicial investigation.
Even so, insider trading is a difficult crime to prove, although new provisions of the Securities and Exchange Law (
Although the new provisions have helped define who "insiders" are and what constitutes "insider information," helping prosecutors clarify cases, the key to bringing a conviction is still the substantial amount of hard evidence prosecutors need to uncover in order to substantiate their charges against the alleged offenders.
To win a conviction in the nation's courts -- which are known for a low conviction rate on insider trading charges -- prosecutors must, first, prove the offenders had access to price-sensitive information which was not available to investors. Second, they need to prove that the offenders knowingly used that information to profit from transactions made for the company, or even themselves. And, third, they have to prove that the offenders' actions affected the company's share price to the disadvantage of its shareholders.
Therefore, as well as looking for unusual or unexplained en-masse transactions that manipulated the share price during the period under investigation, prosecutors also need to locate potential witnesses who are willing to testify in exchange for a lighter sentence in order to put the worst offenders in jail.
Notwithstanding this, prosecutors and financial regulators also need to act to supervise another sophisticated type of market manipulation; fraud -- firms creating non-committal, difficult-to-disapprove stories to paint a rosy picture of their business. These stories are consciously leaked to inexperienced journalists, who are then expected to generate more stories in the future in order to manipulate the company's share price.
As for the courts, judges need to realize that an insider trading conviction will aid the health and development of the nation's capital markets. While insider trading will never be considered as bad as homicide or other violent crime, it does substantial harm to the liquidity of the nation's markets and to the economy. A low conviction rate and lighter sentences certainly do not improve the health of the financial system or do anything to protect the public interest.
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