Raising Capital, Equity

Question 1

Sample Examination Question

George is the managing director of Flub plc, a UK listed company which
manufactures a range of medical products. On the morning of 4 July 2002 George
received news that the company’s new wonder drug had failed a crucial test and
would not be going into production for years, if ever. The news is to be released the
next day at mid-day. George went to a party that evening where he met his friend
Martha who commented that George seemed a bit ‘down’. George replied that
‘things had not been going well with some of the company’s new products’. Martha
had shares in Flub plc and phoned her broker the next morning to discuss selling
her shares. In the course of this conversation she mentions George’s comment
the night before. The broker advises her to sell fast. Martha sells her shares before
mid-day and avoids a huge loss when the bad news about Flub’s wonder drug is
announced.
Discuss the insider dealing implications of the above.

Answer 1

Advice on answering the question
Apply the criminal sanction first (s.52 Criminal Justice Act 1993).
Go through the facts carefully and decide who might have dealt as an insider here –
George? Martha? The broker? Follow the price sensitive information and what each
character does with it.
Remember the insider will also be guilty of an offence if he induces others to deal
(whether they know the information is price sensitive or not) in price sensitive
securities on a regulated market (s.52(2)(a)). It is also an offence just to disclose price
sensitive information to another person in an irregular manner (s.52(2)(a)).
Will the standard of proof be a problem here?
Go through the civil market abuse offence. This is more straightforward but again
apply it to all the characters in the question.