Insider trading involves a transaction in a share or debenture of a company or any of its affiliates by an insider who makes use of any specific unpublished information for his own benefit or advantage that, if generally known, might reasonably be expected to affect materially its value. It is only if the knowledge of the facts has attained the quality of constituting specific confidential information that an insider making use thereof for his own benefit attracts liability for insider trading. It may come as a surprise to many that insider trading applies to all companies and not simply public companies. Indeed, the Canadian Corporations Act, on which the Trinidad & Tobago Act is based, only applies to the type of corporations which under the local Act are referred to as public companies. An insider includes a wide range of persons, namely:
- A director or officer of the company;
- A company that acquires shares issued by it or its affiliates;
- A person who owns or controls more than 10% of the shares of the company;
- An associate or affiliate of any of the foregoing categories; and
- A person, whether or not he is employed by the company, who receives specific unpublished information from any such person as described above and either has knowledge that the person is an insider or has access to specific unpublished information.
An associate includes partners, trustees of trusts or estates, a spouse or child of a person and a relative living in the same household. The category of persons who are deemed to be insiders is therefore very wide indeed.
A person who commits the offence of insider trading is on summary conviction liable to a fine and to imprisonment for a term of six months. Additionally, in civil proceedings an insider who trades in contravention of the provisions of the Act is liable to compensate any person for any direct loss incurred, unless the information was known or, in the exercise of reasonable diligence, should have been known to that person at the time of the transaction. An insider can also be made accountable to the company for any direct benefit or advantage received or receivable by the insider as a result of the transaction. An action to enforce claims by a person who has suffered loss by the company may not be commenced except within two years after the discovery of the facts that gave rise to the cause of action.
One must differentiate between knowledge or expertise developed regarding the company or the market for its shares from facts or information which are available to all parties involved and a knowledge of specific events or the probability of future events gained through the director's access to the corporate business or activities which are not available to other parties with whom the director is dealing or to the public generally. The latter case is inside information. The former only points to a special ability of the director which he is entitled to use to his own benefit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
