1.1 Penalties for insider dealing
As of the CJA 1993, insider dealing is a criminal offence. There are two types of penalties: an unlimited fine and a maximum of seven years’ imprisonment (before 1 November 2021). This has increased to ten years for offences committed on or after 1 November 2021. If individuals are found guilty of insider dealing, the court can impose one or both penalties.
Box 3 Insider dealing: an example
The investment bank UBS AG recruited Fabiana Abdel-Malek to be its senior compliance officer in its London office. During her employment, she was able to gain inside information and disclosed the information to her family friend, Walid Choucair, a very experienced day trader of financial securities. Choucair was able to make a profit of approximately £1.4 million with the information he gained from Abdel-Malek.
In 2019, a jury at Southwark Crown Court decided that Abdel-Malek and Choucair were both guilty of insider dealing under section 52 of the CJA 1993 and the judge sentenced each of them to three years’ imprisonment (Financial Conduct Authority, 2019).
The purpose of the following activity is to help you understand insider trading and the relevant legislation using a multiple-choice question format.
Activity 1 Insider dealing
a.
Criminal Justice Act 1993
b.
Companies Act 2006
c.
Proceeds of Crime Act 2002
d.
Bribery Act 2010
The correct answer is a.
Answer
The Criminal Justice Act 1993 contains legislation on insider dealing.
a.
Use inside information to deal in shares/securities.
b.
Encourage other people to use inside information to deal in shares/securities.
c.
Disclose the inside information to the public.
d.
All of the above.
The correct answer is d.
Answer
All are examples of insider dealing.
a.
The individual did not expect this dealing to make a profit or avoid a loss.
b.
The individual had reasonable grounds to believe that information had been disclosed widely.
c.
The individual expected other people to benefit from this dealing in shares/securities.
d.
The individual would have done the same if they did not have such information.
The correct answer is c.
Answer
According to section 53 of the CJA 1993, expecting other people to benefit from the dealing in shares/securities is not a general defence to insider dealing.
a.
A person has information from an inside source if they have access to the information by virtue of their employment, office or profession.
b.
Insider dealing has been made a criminal offence under section 57 of the CJA 1993.
c.
Inside information is not disclosed publicly.
d.
The person has information from an inside source if the direct or indirect source of their information is a director, employee or shareholder of an issuer of securities.
The correct answer is b.
Answer
Insider dealing has been made a criminal offence under section 52 of the CJA 1993.