Wednesday, September 28, 2011

Five to be charged for insider dealing

The country’s capital market watchdog the Securities and Exchange of Commission of Sri Lanka (SEC) is to charge five employees of SMB Leasing PLC for alleged insider dealing.

Often criticised for being a ‘toothless’ regulator, this major clampdown on irregular market activities follows hot on the heals of two other major actions; one which resulted in a Rs. 10 million fine for non-disclosure and the other where several brokers were cautioned against suspect behavior with one investment advisor being charged for market manipulation.

SEC Director General Malik Cader issuing a statement yesterday said investigations in to certain share transactions of SMB Leasing had revealed that these five employees with access to unpublished price sensitive information had invested in shares or warrants of the company which contravened the SEC Act.

"The SEC by virtue of the powers vested in it under the provisions of the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 (SEC Act) as amended, conducted an investigation pertaining to purchases made in the shares of SMB Leasing PLC (SMB) by five employees of the company prior to information pertaining to a Rights Issue of shares with attached warrants relating to SMB was disseminated to the Colombo Stock Exchange on 17thAugust 2010," the SEC statement said.

"The evidence elicited during the course of the above investigation suggested that the aforesaid investors, being employees of SMB, had been privy to the unpublished price sensitive information pertaining to the Rights Issue of shares with attached warrants or at least regarding a new issue of shares relating to SMB at the time purchases in the said shares had been executed in their respective securities accounts. As a result a decision was reached that the purchase of SMB shares by the aforesaid investors as referred to above, fall within the Insider Dealing provisions contained in Section 32 of the SEC Act as amended.

"In the above circumstances, the Members of the Commission, at its 286th Meeting, held on 7th September 2011, having considered the findings of the investigation pertaining to suspected Insider Dealing in the shares of SMB decided to issue Notice of Action to the five investors referred to above, intimating that proceedings will be instituted against them in terms of the provisions of the SEC Act as amended.

Consequently, Notices of Action were issued on the aforesaid investors in respect of having engaged in Insider Dealing in contravention of Section 32 of the above Act," the SEC said.

Earlier this month the SEC said it was filing action against one investment advisor for market manipulation which is an offence under the SEC Act and sent letters of caution to five other investment advisors, including a trainee, representing three stockbroker firms and two investors on suspicion for the same offence of market manipulation.

The action taken by the SEC was the imposition of fines totaling nearly Rs. 10 million on members of the Board of Directors of Environment Resources Investment PLC, this was in relation to offences of non-disclosure being compounded ‘without the admission of guilt’.

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