Special Topic on Financial Crimes | Analysis of the Arguments on the Crime of Insider Trading and Disclosure of Insider Information
The key to the conviction of the crime of insider trading and disclosing insider information is to accurately define the insiders, identify the content, formation time, disclosure of insider information, and specific behaviors of insider trading. This article will explore the main defense points of the crime of insider trading and disclosing insider information from the perspectives of the subject of insider trading, insider information, objective behavior, objective evidence, and sentencing based on judicial practice and experience and thinking in handling relevant cases.
1、 Debate on the subject of crime - whether it belongs to an insider
or a person who illegally obtains inside information
(1)Even if they know and
have dealings with insiders, but have legitimate sources of information, they
cannot be identified as illegally obtaining insider information.
In the (2017) Ji 01 Xing Chu
No. 102 case, the court found that Hou's trading behavior was indeed abnormal,
but based on the overall evidence of the case, it could not be determined that
Hou had obtained insider trading information from Lan (an insider) about
Longmou Chemical. However, there was evidence to prove that Hou's defense had
learned about the possible reorganization of Longmou Chemical from the
internet. Therefore, it was determined that he was a person who illegally
obtained insider information, and the evidence constituting the crime of
insider trading was insufficient. Hou was ultimately acquitted.
(2)There is a dispute as to whether
the person who passively obtains inside information belongs to the person who
illegally obtains inside information.
The person who passively
obtains inside information refers to a person who has subjective knowledge of
the nature and source of inside information, except for the close relatives or
close relationships of the person who knows the inside information. There are
two main views on whether a person who passively obtains inside information
should be identified as a person who illegally obtains inside information.
Firstly, according to the provisions of the Criminal Law, there are only two
types of subjects involved in the crime of insider trading and disclosing
insider information, namely, insiders and persons who illegally obtain insider
information. Persons who passively obtain insider information do not have the
obligation to keep confidential the insider information, and their means of
conduct do not have illegality, so they cannot be identified as persons who
illegally obtain insider information. Secondly, the legal interests protected
by the crime of insider trading and disclosing insider information are the
management system of securities and futures trading and the legitimate rights
and interests of investors. Whether a person who passively obtains insider
information should be recognized as a person who illegally obtains insider
information depends on whether the person who passively obtains insider
information has the purpose of using insider information to infringe upon these
legal interests.
Neither the Criminal Law nor
the Interpretation of Criminal Cases Concerning Handling Insider Trading and
Disclosing Insider Information (Fa Shi [2012] No. 6, hereinafter referred to as
the "Interpretation") explicitly include personnel who passively
obtain insider information into the scope of personnel who illegally obtain
insider information. The author believes that according to the principle of
legality, the person who passively obtains inside information cannot be
identified as the person who illegally obtains inside information.
2、 Debate on the Object of Crime
(1)Identification at the time
of formation of inside information.
In judicial practice, the
occurrence time of the "significant events" listed in Article 80,
Paragraph 2, and Article 81, Paragraph 2 of the Securities Law, as well as the
formation time of the "policies" and "decisions" specified
in Article 81, Paragraph 11 of the Regulations on the Administration of Futures
Trading, are generally recognized as the formation time of insider information.
Based on the statistics of
punishment decisions published on the official website of the Securities
Regulatory Commission in recent years, and taking the administrative penalty
case of insider trading related to mergers and acquisitions as an example, the
criteria for defining the formation time of insider information mainly include:
the date on which both parties reach a cooperation intention; The date of
proposal; The date of communication and agreement between the chairmen of both
parties; The date of determining the intermediary and participating in the
promotion work; The date on which the leader or actual controller of the
competent authority knows or agrees; The date of signing the confidentiality
agreement and other documents.
The above six defining
standards reflect the objective certainty that is the foundation for the
application of different defining standards. Therefore, the author believes
that the formation time of insider information should be defined with
certainty, that is, significant events or important matters have entered a
certain substantive operational stage and have a great possibility of
realization. The Interpretation stipulates that the initial time of a motion,
planning, decision, or execution personnel that affects the formation of
insider information should be recognized as the time of formation of the
insider information. Due to early legislation and relatively rough and general
nature, the boundary between the formation time and the execution time will be
infinitely expanded, so it should be used as a special standard and only
applicable if it meets the requirements of certainty.
(2)"Failure to disclose
information within the sensitive period of insider information does not
constitute the crime of disclosing insider information, and failure to conduct
insider trading within the sensitive period of insider information does not
constitute the crime of insider trading.".
Insider information has
certain certainty and significance during the sensitive period from its
formation to its disclosure. For example, mergers and acquisitions have entered
a certain substantive operational stage and have a high possibility of
realization, which reflects the certainty of inside information. On this basis,
the significance of inside information, that is, the price sensitivity characteristics,
has also been highlighted, reflecting the significant impact of inside
information on securities prices. In addition, insider information is
confidential, and once leaked, it will affect whether investors are willing to
purchase or sell the securities at the current price.
Conversely, if inside
information has not yet been formed, such as a company that is still
investigating two listed companies, A and B, and has not yet decided which
company to implement a strategic restructuring, the relevant information will
not have certainty; It is also not significant and cannot be further determined
whether this information will have an impact on the price of the securities. In
addition, if inside information has been disclosed and is widely known and
understood by ordinary investors, it is no longer confidential, and the
perpetrator's corresponding transactions after the disclosure of inside
information do not constitute the crime of insider trading.
Therefore, during the period
before and after the formation and disclosure of inside information, the
relevant information does not have confidentiality, certainty, or significance,
and is not classified as inside information. Even if the information is
disclosed or traded, it does not constitute the crime of insider trading or
disclosing inside information.
3、 Debate on Subjective Elements - Negligent Disclosure of Insider Information Does Not Constitute the Crime of Disclosing Insider Information
The husband talks to others
on the phone about backdoor listing, while the wife listens intently and
recommends buying stocks to others. Does the husband constitute a crime of
divulging inside information? "Kuang Yong Case" is the first case of
gross negligence in divulging insider information in China's securities market
investigated and dealt with by the CSRC. The CSRC has extended the
responsibility of divulgers to "negligence", indicating that
negligent disclosure of insider information may also be illegal. However,
because the Criminal Law clearly stipulates that negligent crimes are only
criminally responsible if the law provides for them. The subjective aspect of
the crime of insider trading and disclosing insider information is intentional,
so negligent disclosure of insider information, even if it is a gross
negligence, does not constitute the crime of disclosing insider information.
4、 Debate on Objective Evidence - The probative power and admissibility of the "Confirmation Letter" issued by the CSRC and
other relevant departments as evidence
Securities crimes are highly
specialized, so when handling cases, public security organs, judicial organs,
and others often need relevant professional identification opinions from the
CSRC and others to identify issues such as insider information, insiders, price
sensitive periods, and trading using insider information as a reference, and
rely heavily on such professional identification opinions in the process of
handling cases.
Formally, the Confirmation
Letter issued by the CSRC does not belong to any of the eight types of evidence
specified in the Criminal Law. The content of the "Confirmation
Letter" is often reflected in the professional confirmation opinions
issued by the CSRC on securities professional issues, which are similar to the
appraisal opinions. However, the institution that makes the appraisal opinion
must have a certain degree of independence and neutrality, and the appraisal
department must have legal appraisal qualifications and appraisers according to
law. The "Confirmation Letter" is actually made by the administrative
inspection department on the basis of inspection. Self inspection and self
evaluation are equivalent to being both an athlete and a referee, which clearly
does not comply with the principle of neutrality in appraisal.
In terms of substantive
content, it is also necessary to focus on examining the objectivity and
relevance of the Confirmation Letter. For example, in combination with the
entire case evidence, review whether the facts identified in the Confirmation
Letter are objective, true, and comprehensive; Whether the judgment of
causality is reasonable; Whether the legal basis is accurate; Whether there is
any contradiction or conflict with other evidence in the entire case.
5、 Debate on sentencing
(1)Regarding fines. As for
the crime of divulging inside information, generally speaking, the perpetrator
does not share the proceeds with the insider trading personnel, so there are no
illegal gains. However, courts often impose fines on those who disclose inside
information when considering the harmful consequences of their actions. The
author believes that the penalty imposed by the court on the person who
divulges inside information should not only take into account the amount of
profits made by the insider trading personnel, but also consider the size of
the role played by the person who divulges inside information and the degree of
subjective malignancy. A comprehensive judgment should be made based on common
sense, common sense, and common sense. For example, in the first case of
disclosing insider information - the Hangxiao Steel Structure case, the insider
trading actor Chen Moumou went to inquire about the insider information leaking
actor Luo Mou after he had known the insider information from others. Luo Mou
did not profit from it, and the court ultimately did not impose a fine on Luo
Mou.
In judicial practice, there
is no unified standard for calculating fines based on the amount of joint crime
or the respective amount of crime in the case of joint crime in insider
trading, so it is necessary to clarify it. In general, conviction and
sentencing should adhere to the same amount standard, but in joint crime cases,
especially those with a large number of joint crime cases, this principle
should be amended, otherwise it will inevitably lead to excessive fines and
situations where enforcement is simply impossible. It is more consistent with
the principle of matching criminal responsibility and punishment to impose
fines differently based on full consideration of the role played by the
principal and accessory offenders, the degree of participation, the amount of
profits, and the magnitude of losses caused.
(2)About social harmfulness.
In cases of insider trading and disclosure of insider information, transaction
volume and illegal profit (loss avoidance) amount can reflect the degree of
social harm of the behavior. In some cases, the transaction amount can best
reflect the social harm of the behavior; In some cases, the amount of profit or
loss avoidance can most accurately reflect the social harm of the behavior. For
example, the situation of losing money and not selling stocks has relatively
limited impact on the management order of the securities market, and does not
harm the legitimate rights and interests of the majority of investors.
Therefore, the social harm is relatively small. It is a circumstance that can
be considered as appropriate when sentencing.
(3)Regarding subjective
malignancy. For example, in the case of (2011) Xi Xing Er Chu Zi No. 0002, the
defendants Du and Liu did not realize that their behavior was a crime of
insider trading when they proposed to buy a company's stock. Errors in the
actor's understanding of the legal nature and consequences of his or her
behavior do not affect the judicial organ's determination of the nature of his
or her behavior. However, whether the actor is aware of the crime when
committing the behavior reflects the subjective degree of malignancy of the
actor, which can be considered at discretion in sentencing.
epilogue
The author introduces the basic situation of the case of insider trading and disclosing insider information through three articles: "Trial Practice of the Crime of insider trading and disclosing insider information: Empirical Analysis Based on 74 Judgments", "Characteristics of the case of insider trading and disclosing insider information", and "Analysis of the defense points of the crime of insider trading and disclosing insider information", analyzes the characteristics of the case, and analyzes the defense points, With a view to revealing the problems existing in judicial practice of this crime, it will be beneficial to handling insider trading and disclosing insider information cases.
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