Insider Abuse: A Plea for Criminalisation

Pages171-174
Publication Date01 Apr 1999
DOIhttps://doi.org/10.1108/eb025935
AuthorH.J. de Graaff
Journal of Financial Crime Vol. 7 No. 2 Securities Fraud
SECURITIES FRAUD
Insider Abuse: A Plea for Criminalisation
H. J. de Graaff
Insider dealing is a young offence. The Securities and
Exchange Act came into force in the US in 1934 and
insider dealing was made a criminal offence in various
European countries during the past 25-30 years. In
1987 the European Commission submitted to the
Council a proposal for a directive to coordinate the
regulations on insider dealing, which ultimately
resulted in the Council Directive coordinating regu-
lations on insider dealing (89/592/EEC). Finally, the
Convention on Insider Dealing was signed in Stras-
bourg on 20th April, 1989.
The evolution of the legislation in the Netherlands,
the manner of investigation/prosecution and the
results achieved hitherto will be considered below.
It was only after a long debate that insider dealing
was made a criminal offence in the Netherlands in
1989.
Initially it was designated as an ordinary offence
of fraudulence under Article 336a of the Criminal
Code. In 1992 it became an economic offence under
s. 31a of the Securities Transactions (Supervision)
Act (Wet Toezicht Effectenwerkeer), and since early
1996 it has been an economic offence under s. 46 of
the Securities Transactions (Supervision) Act 1995.
In 1998 the Upper and Lower Houses of the Dutch
Parliament passed Bill No. 25095. The effect of the
Bill is to reformulate s. 46 of the Securities Trans-
actions (Supervision) Act and to add ss. 46a and 46b.
The parliamentary documents relating to this
legislation run to many pages. It is noteworthy that
over time both the Cabinet and the Lower House
have devoted a great deal of attention to this
matter. Explaining the degree of attention paid to
it, the Advocate General, Mr Fokkens, remarked as
follows:
'The criminalisation of insider dealing has been a
long drawn-out process. The Company Law
Commission published a report on insider dealing
as long ago as
1973.'
It is clear from the introduction to this report that it
concerns prevention of the buying and selling of
securities in circumstances where the buyer or seller
uses inside information about developments concern-
ing a company that will affect the results and hence
the price of the securities. The proscribed act is
achieving a gain or avoiding a loss by means of a
transaction. The Explanatory Memorandum to the
Bill to criminalise insider dealing is based on the
same premise. This is evident from the passages
explaining why the improper use of inside informa-
tion must be prevented.
'It of great importance to the functioning of the
Dutch economy and the image of the Dutch
capital market in the financial world beyond our
borders that the capital market be well organised.
Investor confidence in the securities trade is crucial
in this connection. This means that measures must
be taken to prevent people from using confidential
inside information for their own purposes by
buying listed shares just before the price rises and
from disposing of their shares just before the
price falls. Investors must be placed on an equal
footing. Information that is of importance in
assessing an investment must therefore be made
available to the entire investing public as far as
possible at the same time.
There is always a possibility that insiders may
make use of their information for their own perso-
nal gain by buying or selling securities in anticipa-
tion of the change in the price of the shares that
may be expected after the confidential information
is made public. Executive directors, supervisory
directors, certain employees and consultants
obtain this information in the course of their
duties. They are either entrusted with running
and supervising the company or they hold a posi-
tion of trust as an officer of or adviser to the
company. They may not use this position or the
knowledge that they obtain as a result for their
own gain by obtaining a benefit on the securities
market. If they do, this amounts to a breach of
trust the trust, placed in them by virtue of
Journal of Financial Crime
Vol 7 No 2, 1999, pp 171-174
© Henry Stewart Publications
ISSN 0969-6458
Page 171

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