Cash is king

The SC needs to remain vigilant of the insider trading menace as such action remains a problem across the world


THE jail sentence and fine handed to Datuk Ramesh Rajaratnam, the former executive deputy chairman of delisted Malaysian Merchant Marine Bhd (MMM) for insider trading offences hopefully will discourage others from doing the same.

The Securities Commission Malaysia (SC) needs to remain vigilant of the insider trading menace as such action remains a problem across the world.

The minimum RM1 million fine for insider trading under Section 188(2)(a) of the Capital Markets and Services Act (CMSA) 2007 and imprisonment term not exceeding 10 years should be enough of a deterrent for many, but looking at the sharp rise and fall in share prices of listed companies prior to material announcements suggests insider trading remains a problem on the local exchange and for the regulators.

Many continue to do it probably because they believe they still can get away with it. The SC needs to beef up its surveillance capabilities, especially with the use of new technologies and data analysis tools which are already being used by similar regulators abroad.

The punishment meted out to insider trading perpetrators needs to be firmer. At present, some personalities charged with insider trading by the SC continue to be actively involved at their companies after agreeing to settle in cash. The message sent to the public is that there is a price to justice.

The regulators should consider banning any individuals found to have been involved in insider trading from taking part in the management, acting as a director or becoming a substantial shareholder of any public listed company or capital market services firm.

Shareholders, especially institutional investors, should be more vocal and assertive on such corporate governance issues.

The 55-year old Rajaratnam, meanwhile, was sentenced to a five-year jail term and fined RM9 million by the Kuala Lumpur Sessions Court on Wednesday, but the judge allowed a stay of the jail sentence, pending an appeal.

He was also ordered to pay the RM9 million fine by the end of the day, failing which he would have to serve a default jail term of nine years, an SC statement on Wednesday noted.

Whether he paid the fine was not disclosed which raises the jail term to 14 years in total.

If his appeals to the High Court and the Court of Appeal fail, Rajaratnam could have to serve up to nine years before he is eligible for early release for good behaviour under law.

Rajaratnam was found to have sold 10.2 million shares in MMM, while having material non-public information of a proposed downgrade by the Malaysian Rating Corp Bhd (MARC) on the credit rating of MMM’s Al-Bai Bithaman Ajil Islamic debt securities which was made public by MARC on Feb 4, 2010.

He also knew of the impending classification of MMM as a PN17 company which happened in March 2010. He sold the MMM shares on Jan 11, 2010, Feb 19, 2010, and Feb 22, 2010.

While Rajaratnam chose to fight the charge, former director of Three-A Resources Bhd, Fong Chiew Hian, 83, was sentenced to one-day jail and fined RM1 million in default of one year’s jail by the Sessions Court after he pleaded guilty to nine counts of insider trading.

Fong had bought 891,000 shares of Three-A Resources a decade ago, while having confidential information of a proposed merger with Wilmar International Ltd.

Case history here would suggest in the future, anyone accused of insider trading should just accept the charge, pay the fine and walk if he or she has deep pockets, instead of slugging it out at the court and fight the charge.

Bhupinder Singh is the corporate desk editor of The Malaysian Reserve.