Preventive Steps Against Insider Trading Examples
In the corporate world, insider trading examples have always been a threat to the regulated securities market, which is essential in order to maintain investor confidence, which, in turn, is necessary for a healthy market. Many jurisdictions have enacted statutes to prohibit insider trading. In order to prevent trading, jurisdictions often require issuers of financial instruments to inform the public as soon as possible of the inside information. Such jurisdictions generally regulate the dissemination of information and research concerning financial instruments.
In addition to general supervisory and investigative powers, statutes may vest financial authorities with the power to take necessary measures to ensure that the public is kept informed, to punish non-cooperation with investigations, to suspend insider trading of the security in question, to freeze or sequester assets, to seek to temporarily enjoin professional activity, and/or to order those who violate insider trading laws to make restitution.
Injunctions serve the remedial function of barring insiders from future inside positions but do not otherwise penalize the defendant. Affected corporations may recover through the process of disgorgement, which compels the insider to turn over any losses avoided or profits made. Disgorgement is the act of giving up something (such as profits illegally obtained) on demand or by legal compulsion. However, Disgorgement is a remedy and not a punishment. It merely restores a defendant to his original position before the trade in question without punishing for the illegal behaviour.
A court may order wrongdoers to pay back illegal profits with interest to prevent unjust enrichment. Some jurisdictions have found these remedies to be inadequate deterrents, and have enacted laws testing financial enforcement authorities with the authority to impose fines, in some cases treble damages, or penalties up to three times the profit made or the loss avoided by the insider trading. In the US, even civil penalties are linked to the size of the profit made or loss avoided. The Securities Exchange Commission allows the offenders to simply pay up without admitting to an offence by merely publishing the settlement. This, too, is an important deterrent, which prevents every case from being locked up in court. In contrast, the maximum penalty allowed to be imposed in India, according to Section 195 of the companies act, 2013, is five lakh rupees which may extend to twenty-five crore rupees or three times the amount of profits made out of trading, whichever is higher, or with both read with the provisions of the SEBI act,1992.SEBI has not allowed separate penalties under the Regulations.
Reference is made, however, to the penal provisions under the SEBI Act, 1992 that shall apply. SEBI is also empowered to prohibit an insider from investing in or dealing in securities, declare violative transactions as void, order return of securities so purchased or sold. Any person contravening or attempting to contravene or abetting the contravention of the Act may also be liable to imprisonment for a term, which may extend to ten years or with a fine that may extend to INR 250,000,000 (Rupees Two Hundred Fifty Million Only) or with both. The new 2015 regulations in India have moved a step further from the provisions of the 1992 regulations. The Regulations prescribe certain disciplinary sanctions that may be taken by companies or market intermediaries to require due to compliance of the Regulations.
Hence, the importance of exemplary damages stands emphasized under the Indian law to act as an effective deterrent.