To all of us
The following is a very valuable article written by DIANE FRANCIS who is the most wisdom of the questioning of Bre-X scan before this fraud was exposed (Her column is my most favorite in FP). It is interesting to link the two cases in her article. Her voice represents most investors's demanding. Her suggestion is definately to protect the investors's interests in today's situation.
Don
Saturday, October 11, 1997
Insider trading can and should be reported
the moment it happens
By DIANE FRANCIS
The Financial Post
The recent sale of $20.5-million-worth of Corel Corp. stock by company
President Michael Cowpland has raised a few eyebrows.
That is because Cowpland sold the stock in August to pay off debts just weeks
before the company reported a surprising loss in its third quarter.
Cowpland told the press he didn't know the company was facing such horrendous results when he
sold.
The stock was sold between Aug. 11 and Aug. 14, according to insider trading reports Cowpland
filed with the Ontario Securities Commission.
Then on Sept. 10, Corel warned analysts its quarter ended Aug. 31 would show an unexpected net
loss of US$32 million because revenue dropped 40% lower than predicted.
There is nothing incorrect about what Cowpland did.
It is not uncommon for sudden downturns to take executives -- or in this case big shareholders --
by surprise.
But this and other controversies involving insider trading nag the marketplace. I believe the laws
must change when it comes to such filings.
Laws are out of date, given the new reality of instant, electronic information available to ordinary
investors with a flick of a switch.
Right now, insiders are required to file information about their stock transactions within 10 days
following the month they made their transactions.
That's ridiculous.
For instance, as things exist, an insider who trades on the first day of a month would not have to
disclose trading information for one month and 10 days.
Insider trading can, and should be, reported, in real time, when it happens. There is no reason why
information should be disseminated so long after the fact. With real-time electronic dissemination in
markets, there's no technological impediment to "timely" disclosure when it comes to what insiders
do in markets.
Ironically, insider trading rules, as constituted, do not actually meet the full, fair and timely
disclosure requirements that capital markets must protect.
The problem with a change in such rules, however, is that it must be done in concert with
exchanges around the world or, at the least, with those exchanges that have interlisted
Canadian-listed public companies.
To do otherwise would hobble both the Canadian investing public and the publicly listed companies
here.
Put another way, if Canadian exchanges required immediate and full disclosure of insider trades and
the U.S. or others did not, companies might be inclined to be listed outside Canada.
That would only serve to hurt Canadian stock exchanges, not to help Canadian investors.
Of course, what other countries do or don't do has not got very much to do with the issue itself.
Facts are that company insiders could, and should, voluntarily disclose their insider trading the
minute they trade.
I would certainly applaud such action and I believe the marketplace might even reward it.
Insider trading issues are also at the heart of the OSC's probe into Bre-X Minerals Ltd. The
investigators have created a database that includes the million or more transactions in Bre-X and
related companies that took place.
They must now determine if insiders who found out in July 1996 the company had some permit
problems in Indonesia were entitled to make tens of millions of dollars selling Bre-X stock in
August. The question is, did the permit problems constitute a material fact that would affect the
value of the stock one way or another? If the answer is yes, then the insiders may be guilty of
withholding material facts for their own gain and may have to return all the money pro rata to
shareholders of record.
There are other punishments, too.
If charges are laid by the OSC they may be laid as criminal charges or a hearing might be held into
the affair. Jail sentences and triple damages are possible if guilt is determined.
Whatever the outcome of that probe, the fact is that if all and any insider trading reports have to be
immediately filed at the same time as they occur, the public and analysts are at least alerted more
quickly to ask questions as to why sales or purchases are made.
I would hope public policymakers in this country consider reforming insider trading rules.
At the moment, the public is not given the information in as timely a fashion as technology will now
permit.
Diane Francis is editor of The Financial Post. |
