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The law said it is unlawful for an insider to buy or sell
a security if he is in possession of material information not available
to the public. Unless he proves that the information was not gained
from his relationship to the corporation or the other party or that he
disclosed the information to the other party or he had reason to believe
the other party is in possession of that information. That is the
loophole. Defense, “I thought he already has possession of the
information.”
I think
what happened there was that the brokers lobbied. It was Roco who
placed that there. That’s why they excluded the media, they excluded
the public when they put that there.
And
if the purchaser of the security is the spouse, relative by affinity or
consanguinity, whether legitimate or common-law, will be presumed to
have been effected while in possession of material nonpublic
information. If he made that after the information came into existence
but before it was disseminated to the public.
And the
law defines when information is material. If
a.
It would likely affect the price of
securities had it been disseminated to the public, OR
b.
A reasonable person would consider it in
determining his course of action to buy, sell or hold a security.
If a
share is listed in the market, the issuer is required to disclose to the
SEC if there is any material information. Well, the rules of the stock
exchange will also do that. Like if the labor union serves a notice of
strike, that has to be disclosed to the SEC and to the stock exchange
cause that would affect the price of its shares. That what happened
with Interpol (?) When they were negotiating with a corporation in
Malaysia, every time there would be a negotiating session, the directors
would massively buy shares. They denied that there was insider
trading. They were saying that there was no negotiating yet when they
were buying but the Philippine Stock Exchange contacted the Kuala Lumpur
Stock Exchange, the Kuala Lumpur Stock Exchange said, yes, negotiations
started before they started buying because the directors served a notice
that they were negotiating. This again is something material that could
affect the price of the shares there.
There
are a lot of people liable for damages under this Code.
Well,
remember that the main idea of the Securities Law is to discard
caveat emptor. Selling should instead be based on good faith. Full
disclosure. And thus, these rules against non-disclosure, or
manipulation. They apply to all sales or shares. Even if the shares
are not listed in the stock market. These provisions are applicable.
So if there is a private selling of shares listed in market and there is
inside information available to the seller and he disclosed that to the
buyer, that is covered by the law.
Now if
there is any false statement in the registration statement, the one who
acquired the security may sue the issuer and every person who signed the
registration statement. Every person who was a director, the person
named as about to become a director, the auditor, who certified to the
financial statement. Every person who with his written consent has been
certified as to having prepared the registration statement. That’s why
the lawyer who signed the registration would also be liable. That’s why
we have to conduct due diligence, legal audit. We examine the corporate
papers of the corporation, pending cases, the status of those pending
cases, etc. Because then it would be a defense that you
conducted the due diligence audit as a reasonable man would have done
and you relied in good faith on documents furnished to you.
Every
selling stockholder who contributed to the statement and the
underwriter, bank, investment company which sold its share to the
public. Those who sell their share in violation of this code are liable
for damages. Also those who commit fraud, manipulation, insider
trading.
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