Is ‘intention to use inside information’ required to be proved for one to be liable for insider trading?

SURUHANJAYA SEKURITI MALAYSIA v. SREESANTHAN ELIATHAMBY [2021] 7 CLJ 913

• Sreesanthan (“the Lawyer”) is a corporate lawyer of some considerable repute.

• The Securities Commission Malaysia (“the SCM”) sought to make the Lawyer liable in a civil action for insider trading.

• In March 2006, CIMB Investment Bank Berhad (“CIMB”) came up with a plan for the privatisation of Worldwide Holdings Berhad (“WHB”)

• At the time, WHB was a public company listed on Bursa Malaysia Securities Berhad, the Malaysia stock exchange.

• Approximately 51% of WHB’s shares were held by Perbadanan Kemajuan Negeri Selangor (“PKNS”), the state development agency for Selangor. WHB was the only listed subsidiary of PKNS.

• From May to June of 2006, representatives of CIMB communicated with the Lawyer to obtain legal advice on legal aspects of the proposed privatisation.

• It was the SMC’s case that, during these interactions between the CIMB personnel and the Lawyer, the Lawyer came into possession of information that PKNS was proposing to privatise its listed subsidiary, and that because WHB was the only listed subsidiary of PKNS, the Lawyer had deduced the identity of WHB.

• The Lawyer acquired 600,000 shares in WHB in June and July 2006.

• The Lawyer sold his WHB shares in September 2006, from which a gain of approximately RM678,134.00 was recorded (before transaction costs).

• The SCM contended that the Lawyer contravened the insider trading provisions in s. 89E(2)(a) of the Securities Industry Act 1983 by purchasing the Worldwide shares while in possession of material non-public information.

• The High Court found that the SCM had proven its case against the Lawyer and that none of the defences had been made out.

• The insider trading prohibition under Malaysian law does not create strict liability offences. Mens rea [intention] must be proven and to establish mens rea for that purpose, it has to be proven that the Lawyer knew or ought reasonably to have known that the information in his possession was not generally available to others.

• There is, however, no requirement for the SCM to prove an intention to use the inside information.