Week 4 - FMA & Auditor Liability Flashcards
what are the aims of the FMA?
- ensure financial markets are fair efficient
- increase confidence in SA markets
- reduce risk
- promote market competitiveness
- promote protection of regulated persons/investors
offences included under market abuse in FMA?
- insider trading
- prohibited trading practices
- false, misleading, deceptive statements, promises, forecasts
what is insider trading?
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
why is insider trading outlawed?
- 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
other offences relating to insider trading that are prohibited by FMA?
dealing
encouraging/discouraging dealing
improper disclosure
what is dealing?
an insider who owns shares in the company and you buuy/sell shares based on the insider info
how/who can be liable under FMA?
- if person does the prohibited offences = liable
- can also be liable if JP, pship, trust
what is an insider?
(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
insider info must be?
- precise
- not have been made public
- obtained as an insider
- if it were made public, would have material effect on share price
info would be considered public if?
- 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
what are the 5 insider trading offenses?
- dealing on bhehalf of someone else (being an insder / knowing one)
- dealing
- disclosure
- encouraguing/discouraging
what are the penalties for insider trading?
50mil fine
10 year prison
both
what are the civil liability for insider trading?
will be in a delictual sense if you cause a loss or damages to a person through insider trading
what is the obj of market manipulation?
making money dishonestly
rationale of regulating market manipulation?
- 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
what are the prohibited trading practices (MM)?
- 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
what are the deemed prohibited practices?
usually prohibited unless proven otherwise
- wash sales
- matched orders
- pumping and dumping
- marking the close
what are wash sales?
buying and selling shares to themselves where no name is attached; creates false idea of trade acitivity; no change in beneficial ownership of share
what are matched orders?
buying and selling same no/type of shares between two people to give false idea of trading activity
what is pumping and dumping?
buying high and selling low
what is marking the close?
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
liability of MM?
can be both civil and criminal
penalty for MM?
50mil fine
10yr prison
both
what are the defenses for MM?
- 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_)
what are false/misleading statements?
- no promises or forecasts which you know are false or misleading
- any omissions you know will render the info false
what are the offences for false/misleading statements?
if they dont correct = offense
where can an auditor have liability?
APA, delict or contract
what are the Acts where an auditor can be liable?
APA,
comm law delict principles,
apportionment of damages act
what can happen to liable auditor?
- client damages
- third party damages
- disciplinary actions
- criminal charges
what board does the APA establish for auditors?
IRBA
purpose of IRBA?
- promote integrity of auditors
- prescribe standards for ethics, qualificiatinos
- protect public in dealings w auditors
- final authority on education, training
type of liability the APA imposes?
criminal = ito reportable irregularities and failure to discharge duties
what offenses will convict an auditor under APA?
- failing to report an RI
- knowingly/recklessly expresses an opinion which is false in a material respect
penalty for APA offenses?
- fine
- imprisonement less than 10 years
- both
auditor penalty for breaching contractual liability?
liable for negligence to client ito the contract for full loss sustained
auditor penalty for breaching delictual liability?
liable for negligence to client ito the contract for damages
Apportionment of Damages Act?
if client sues for delict, and they are partially responsible/at fault (bc they were negligent), damages may be apportioned
what is market abuse?
a prohibited practice ito which persons attempt to create a false market in securities and includes manipulation of security prices
possible way to limit insider trading?
prompt disclosure of price-sensitive information by the listed companies
defences for dealing for own account
only became an insider after they gave instructions to deal and instructions did not change after they became an insider
defenses for dealing for another
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
defenses for disclosing inside info
was necessary for proper performance of functions of their employment or in circ unrelating to dealing of securities
