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2022 - Company Law > Week 4 - FMA & Auditor Liability > Flashcards

Week 4 - FMA & Auditor Liability Flashcards

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1
Q

what are the aims of the FMA?

A
  • ensure financial markets are fair efficient
  • increase confidence in SA markets
  • reduce risk
  • promote market competitiveness
  • promote protection of regulated persons/investors
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2
Q

offences included under market abuse in FMA?

A
  • insider trading
  • prohibited trading practices
  • false, misleading, deceptive statements, promises, forecasts
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3
Q

what is insider trading?

A

sale and purchase of a company’s shares by persons associated with the company (insiders) who are in possession of price-sensitive information not generally available and that info is gained as a result of the association

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4
Q

why is insider trading outlawed?

A
  • insider is in a position of trust, is breaching fiduciary duty by spilling secrets
  • harmful to company
  • insider should not have advantage over the outsider
  • IT deters investors
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5
Q

other offences relating to insider trading that are prohibited by FMA?

A

dealing
encouraging/discouraging dealing
improper disclosure

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6
Q

what is dealing?

A

an insider who owns shares in the company and you buuy/sell shares based on the insider info

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7
Q

how/who can be liable under FMA?

A
  • if person does the prohibited offences = liable

- can also be liable if JP, pship, trust

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8
Q

what is an insider?

A

(s77)
a person who has inside info either:
- through being a director, empl, SH of shares listed on the market or an issuer of derivative instruements related to securites which inside info relates to or have access to such info bc employment
- where such person knows the info and knows that the source was an empl/direcotr/etc

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9
Q

insider info must be?

A
  • precise
  • not have been made public
  • obtained as an insider
  • if it were made public, would have material effect on share price
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10
Q

info would be considered public if?

A
  • published in accordance w rules of relevant market to inform clients
  • contained in public records
  • can be readily acquired by those likely to deal in listed securities
  • info can still be public if hidden – can only be acquired by those exercising dilgence
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11
Q

what are the 5 insider trading offenses?

A
  • dealing on bhehalf of someone else (being an insder / knowing one)
  • dealing
  • disclosure
  • encouraguing/discouraging
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12
Q

what are the penalties for insider trading?

A

50mil fine
10 year prison
both

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13
Q

what are the civil liability for insider trading?

A

will be in a delictual sense if you cause a loss or damages to a person through insider trading

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14
Q

what is the obj of market manipulation?

A

making money dishonestly

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15
Q

rationale of regulating market manipulation?

A
  • to maintain an open and free market where natural forces (supp/dem) determine share price
  • to achieve inv confidence in the integrity of the market, protect them from market manipulation
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16
Q

what are the prohibited trading practices (MM)?

A
  • may not do anything to create a false/deceptive appearance of the demand/supp of a share or its trading activity or an artificial price for that share
  • persons who reasonably ought to have known you were doing such
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17
Q

what are the deemed prohibited practices?

A

usually prohibited unless proven otherwise

  • wash sales
  • matched orders
  • pumping and dumping
  • marking the close
18
Q

what are wash sales?

A

buying and selling shares to themselves where no name is attached; creates false idea of trade acitivity; no change in beneficial ownership of share

19
Q

what are matched orders?

A

buying and selling same no/type of shares between two people to give false idea of trading activity

20
Q

what is pumping and dumping?

A

buying high and selling low

21
Q

what is marking the close?

A

waiting till very last minute (to closing of the market) and buying at a certain price to change and maintain the closing price of a share

22
Q

liability of MM?

A

can be both civil and criminal

23
Q

penalty for MM?

A

50mil fine
10yr prison
both

24
Q

what are the defenses for MM?

A
  • price stabilization before you plan to issue a new volume of shares
  • definition defneces (did not meet def of MM)
  • Chinese Wall (informations block in company_)
25
Q

what are false/misleading statements?

A
  • no promises or forecasts which you know are false or misleading
  • any omissions you know will render the info false
26
Q

what are the offences for false/misleading statements?

A

if they dont correct = offense

27
Q

where can an auditor have liability?

A

APA, delict or contract

28
Q

what are the Acts where an auditor can be liable?

A

APA,
comm law delict principles,
apportionment of damages act

29
Q

what can happen to liable auditor?

A
  • client damages
  • third party damages
  • disciplinary actions
  • criminal charges
30
Q

what board does the APA establish for auditors?

A

IRBA

31
Q

purpose of IRBA?

A
  • promote integrity of auditors
  • prescribe standards for ethics, qualificiatinos
  • protect public in dealings w auditors
  • final authority on education, training
32
Q

type of liability the APA imposes?

A

criminal = ito reportable irregularities and failure to discharge duties

33
Q

what offenses will convict an auditor under APA?

A
  • failing to report an RI

- knowingly/recklessly expresses an opinion which is false in a material respect

34
Q

penalty for APA offenses?

A
  • fine
  • imprisonement less than 10 years
  • both
35
Q

auditor penalty for breaching contractual liability?

A

liable for negligence to client ito the contract for full loss sustained

36
Q

auditor penalty for breaching delictual liability?

A

liable for negligence to client ito the contract for damages

37
Q

Apportionment of Damages Act?

A

if client sues for delict, and they are partially responsible/at fault (bc they were negligent), damages may be apportioned

38
Q

what is market abuse?

A

a prohibited practice ito which persons attempt to create a false market in securities and includes manipulation of security prices

39
Q

possible way to limit insider trading?

A

prompt disclosure of price-sensitive information by the listed companies

40
Q

defences for dealing for own account

A

only became an insider after they gave instructions to deal and instructions did not change after they became an insider

41
Q

defenses for dealing for another

A

say person is an authorized user and you were acting on specific instructions from the client and did not know the client was an insider / client only became insider after instruction was given

42
Q

defenses for disclosing inside info

A

was necessary for proper performance of functions of their employment or in circ unrelating to dealing of securities

2022 - Company Law (13 decks)

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