ACCA F4 - Corp and Business Law (ENG)

344 22: Fraudulent and criminal behaviour  Part H Governance and ethical issues relating to business

2.5 General defences

An individual has a defence regarding dealing and encouraging others to deal if they prove that:

 They did not expect there to be a profit or avoidance of loss

 They had reasonable grounds to believe that the information had been disclosed widely enough

to ensure that those taking part in the dealing would be prejudiced by having the information

 They would have done what they did even if they did not have the information, for example, where

securities are sold to pay a pressing debt

Defences to disclosure of information by an individual are that:

 They did not expect any person to deal

 Although dealing was expected, profit or avoidance of loss was not expected

2.6 'Made public'

Information is made public if:

 It is published under the rules of the regulated market, such as the Stock Exchange

 It is in public records, for example, notices in the London Gazette

 It can readily be acquired by those likely to deal

 It is derived from public information

Information may be treated as made public even though:

 It can only be acquired by exercising diligence or expertise (helping analysts to avoid liability).

 It is communicated only to a section of the public (thus protecting the 'brokers' lunch' where a

company informs only selected City sources of important information).

 It can be acquired only by observation.

 It is communicated only on a payment of a fee or is published outside the UK.

2.7 Penalties

Maximum penalties given by the statute are seven years' imprisonment and/or an unlimited fine.

Contracts remain valid and enforceable at civil law.

2.8 Territorial scope

The offender or any professional intermediary must be in the UK at the time of the offence or the market

must be a UK regulated market.

2.9 Problems with the laws on insider dealing

The law on insider dealing has had some limitations, and new offences, such as market abuse, have been

brought in to reduce security related crime.

The courts may have problems deciding whether information is specific or precise. The statute states that

information shall be treated as relating to an issuer of securities not only when it is about the company

but also where it may affect the business prospects of the company.

The requirement that price-sensitive information has a significant effect on price limits the application of

the legislation to fundamental matters. These include an impending takeover, or profit or dividend levels

which would be out of line with market expectations. As a result, the concept of 'market abuse' was

introduced in the UK in 2000. This was partly in response to the perceived ineffectiveness of the insider

dealing provisions in the Criminal Justice Act 1993.

Exam questions may be set on insider dealing and market abuse. If this is the case, remember that insider

dealing is a criminal offence, market abuse is a civil matter.

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