Sarah Bullen
Last year the Insider Trading Directorate (ITD) dropped a minor bombshell on local markets by publishing a list of companies in whose shares insider trading was suspected. In January it added 10 more to its list of 43. Six claims have been settled, seven have been closed due to lack of evidence and other investigations are ongoing.
Now the Financial Services Board (FSB), of which the ITD is a division, has placed advertisements inviting parties who suspect they may have suffered loss as a result of insider trading activities to file claims for compensation. Not surprisingly the board was inundated with claims.
Say on Friday you make a decision to sell shares you hold in a firm. The following Wednesday the firm announces a major deal and the share price rockets. You swear, kick the dog, curse your luck and, in time, come to terms with your grief. However, it may so happen that the person who bought your shares had inside knowledge that the deal was going ahead and abused that in buying shares at the lower price. It could be a company executive, who tipped her husband or hairdresser, or an employee at the printer that bound the deal documents.
It is almost certain to happen that the investigating team of the directorate will settle its beady eyes on that day.
The Insider Trading Act gives the ITD the mandate on behalf of the investor who sold into the market to sue the person suspected of buying their shares on the basis of insider information. On any given day, however, there are hundreds of sellers in the market and it is likely to be an impossible task to pinpoint the individual who actually sold their shares to the insider trader.
But ITD chair Rob Barrow says that the FSB does have information on who traded in the relevant period – be it an individual or an institution. The ITD, therefore, acts on behalf of all possible parties over the period. This means that a claimant will most likely not “get back” what was lost on an untimely sale as the amount available for distribution will be divided between the legitimate claims received.
The Insider Trading Act allows the ITD to institute civil action against the suspect, or to alert the authorities to the possibility of a criminal prosecution. The maximum fine in a criminal prosecution is a 10-year prison sentence or a R2-million fine, while civil action carries a fine calculated as profit made or loss avoided, plus a penalty of up to three times that amount.
Ron Sackstein, chief executive officer of I-Fusion, coughed up R1,1-million, and Syd Rogers, former managing director of Beige Holdings paid R800 000 in December to settle claims against him.
The directorate deducts from the settlements costs it incurred in the investigation – leaving the remainder to be distributed back to those claiming compensation. In the case of I-Fusion that leaves R935 654 after costs of R165 346 have been deducted, while Kalahari Goldridge Mining Company shareholders are left R14 164 after costs of R19 522 were deducted from the R33 616 settlement.
In total the ITD has just under R2- million in funds waiting for distribution. If you suspect you may have been prejudiced in trade in Kalahari, I-Fusion, Idion Technology Holdings and Brandcorp Holdings over the specified dates, the process of claiming is fairly straightforward, explains Barnard Jacobs Mellett’s compliance officer Brynn Furmidge.
The FSB will alert dealers and brokers if trade through their door falls in the relevant period. From there it is a question of filling in a claim form and submitting it to the directorate.
Easier still is to visit the FSB’s website off which a claim form can be downloaded: www.fsb.co.za