Can insider trading be easily profitable? From the perspective of regulatory punishment cases, the result may be “lose your wife and lose your soldiers”.
Recently, Guangdong Securities Regulatory Bureau disclosed three administrative punishment decisions involving insider trading “St Kangmei” at one time. The four parties were fined 500000 yuan for disclosing insider information or insider trading. Among the three insider trading cases, only one person made a small profit, and the other two suffered a certain loss, which is not worth the loss.
In the interpretation of their insider trading behavior, some parties claimed that “there is no intention of insider trading subjectively”, which is held for a long time and incurred losses; Some parties also said that they should correct them in time after being aware of the inadequacy and requested that no administrative penalty be imposed. However, these reasons have not been recognized by regulators.
inside information: Guangyao group takes over Kangmei Pharmaceutical
In retrospect, Kangmei pharmaceutical’s 30 billion financial fraud case has set a record for a shares. After the CSRC issued a top ticket, Ma Xingtian, chairman of Kangmei pharmaceutical, was sentenced to fixed-term imprisonment of 12 years and a fine of 1.2 million yuan for the crime of manipulating the securities market, illegal disclosure, non disclosure of important information and unit bribery; Other responsible persons were also sentenced to fixed-term imprisonment and a fine for their participation in relevant securities crimes.
After the dust settled, Kangmei pharmaceutical has opened the era of Guangzhou Pharmaceutical, and the board of directors and management from Guangzhou Pharmaceutical Group have been in place. However, the management of inside information by Guangzhou Pharmaceutical Group needs to be strengthened. Recently, a series of administrative penalties for insider trading from Guangdong securities regulatory bureau have confirmed this.
First of all, how is the information of this insider trading formed?
After the explosion of Kangmei pharmaceutical industry, on July 10, 2020, in order to resolve the risks of Kangmei pharmaceutical industry, the relevant departments held a meeting to discuss the selection of enterprises with traditional Chinese medicine production qualification to host Kangmei pharmaceutical industry, and preliminarily determined that the custodian is Guangzhou Pharmaceutical Group Co., Ltd. (Guangzhou Pharmaceutical Group). Li mouyuan, party secretary and chairman of Guangzhou Pharmaceutical Group, informed the relevant personnel of Guangzhou Pharmaceutical Group and its subordinate companies of the above custody information on the same day.
From 9:00 a.m. to 10:30 a.m. on July 13, 2020, Guangzhou Pharmaceutical Group held an enlarged Party committee meeting to inform the trusteeship decision. From 10:30 to 11:30 in the morning of the same day, Guangzhou Pharmaceutical Group held a special meeting on Trusteeship of Kangmei pharmaceutical industry. After the meeting on July 13, Guangzhou Pharmaceutical Group arranged the participants of the above two meetings to sign the confidentiality commitment letter.
On July 20, 2020, Guangzhou Pharmaceutical Group held a meeting to study the trusteeship of Kangmei pharmaceutical, with the participation of relevant intermediaries.
On July 22, 2020, relevant personnel of Guangzhou Pharmaceutical Group went to Jieyang to carry out preliminary research. That evening, Ma mougu, chairman of Kangmei Pharmaceutical Co., Ltd., informed relevant personnel of Kangmei Pharmaceutical Co., Ltd. of matters that may involve the change of control of Kangmei Pharmaceutical Co., Ltd. and arranged relevant announcements.
On July 23, 2020, Kangmei pharmaceutical announced that it had received the notice from Kangmei industry, the controlling shareholder of the company, that Kangmei industry was planning a major event, which may lead to the change of control of the company, and the trading of “St Kangmei” shares was suspended on the same day.
On September 2, 2020, Kangmei pharmaceutical issued the suggestive announcement on the transfer of voting rights and the proposed change of control rights of the company’s controlling shareholders and other relevant announcements, “St Kangmei” shares resumed trading the next day.
On the whole, the proposed change of the company’s control caused by the custody of Kangmei pharmaceutical is a major event stipulated in the securities law. It belongs to inside information before disclosure. The sensitive period of inside information is from July 10, 2020 to July 23, 2020.
employees get inside information in advance
It is not difficult to see that when Guangzhou Pharmaceutical Group plans to host Kangmei pharmaceutical, Kangmei pharmaceutical’s share price is at a low point. Since then, Kangmei pharmaceutical’s share price has been rising all the way. After the resumption of trading in September 2020, it has pulled out multiple limit sectors continuously, and the share price nearly doubled compared with that before the suspension, reaching 4.53 yuan / share at one time, which is the highest record of Kangmei pharmaceutical’s share price after the thunder explosion. In other words, the takeover of Guangzhou Pharmaceutical Group is really great good news for Kangmei pharmaceutical industry.
So, what did the leaders / employees of Guangzhou Pharmaceutical Group who learned the inside information in advance do?
Pei moujian: trusteeship firm buying confidence
According to public information, Pei has held important positions in several subordinate companies of Guangzhou Pharmaceutical Group, such as deputy director of Guangdong Pharmaceutical Group and chairman of Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited(600332) Pharmaceutical Sales Co., Ltd.
On the morning of July 13, 2020, Pei moujian attended the enlarged meeting of the Party committee of Guangzhou Pharmaceutical Group. On that day, he bought and traded 143300 shares of “St Kangmei” in his own securities account, with a transaction amount of 344900 yuan. After the sensitive period, 62500 shares of “St Kangmei” were successively purchased, with a transaction amount of 224300 yuan.
From May 7, 2021 to August 17, 2021, Pei moujian’s securities account successively sold ” Kangmei Pharmaceutical Co.Ltd(600518) ” shares. After deducting transaction taxes, the above transaction loss was 12300 yuan.
In this regard, Pei Jianshen argued that he had no intention of insider trading subjectively. At the time of trading, Kangmei pharmaceutical’s share price had long-term investment value. Learning about the custody on July 13, 2020 strengthened the confidence of buying and holding, but it was not the original motivation of buying. In addition, its trading objectively does not conform to the manifestation of insider trading. It neither buys a lot after being informed of the good news, but only allocates part of the stock funds to buy, nor cashes in and sells in a large profit or good news. Instead, it continues to hold, resulting in losses in the end.
In addition, Pei pointed out that at the trusteeship meeting on July 13, 2020, it was not required that st Kangmei shares could not be traded, and the letter of commitment was a follow-up supplementary signature. He has conducted deep reflection and is not familiar with securities laws and regulations, so he will strengthen his study. Because the transaction amount is small and the transaction is at a loss, the information has not been further leaked, and it is a first offence, so it is requested to be exempted from punishment.
However, such arguments have not been recognized by regulators. Guangdong securities regulatory bureau said that the transaction profit and loss, the signing of the letter of commitment and whether they know the law have nothing to do with the determination of the case. This case has fully considered the facts, nature, circumstances and social harm of the illegal acts of the parties, and is in line with the principle of excessive punishment. Based on this, Guangdong Securities Regulatory Bureau rejected Pei’s opinions and finally imposed a fine of 500000 yuan.
Xu mouliu: information is uncertain
Public information shows that Xu mouliu is currently the chairman of Guangzhou wanglaojida Health Industry Co., Ltd. under Guangzhou Pharmaceutical Group.
Xu attended the enlarged meeting of the Party committee of Guangzhou Pharmaceutical Group on the morning of July 13, 2020. On the same day, the securities account under his own name purchased and traded 500000 shares of “St Kangmei”, with a transaction amount of 1.197 million yuan; The trading funds come from the deposited funds in its securities account and the loans of Liu moujia and Liu mouhua.
On July 15, 2020, Xu mouliu sold all the “St Kangmei” shares he held, with a turnover of 1.225 million yuan. The above transaction is entrusted by the mobile phone number I use. After deducting the transaction tax, the profit of the above transaction is 26400 yuan.
For this insider trading, Xu mouliu said that the information of “Guangzhou Pharmaceutical Group Co., Ltd. plans to host Kangmei pharmaceutical” obtained before 10:30 a.m. on July 10, 2020 is uncertain and belongs to his own judgment. The custody of Kangmei Pharmaceutical Co., Ltd. by Guangzhou Pharmaceutical Group was finally clarified on July 17, 2020, which is the starting point of the sensitive period of inside information. After knowing that it was inappropriate to buy Kangmei pharmaceutical’s stock, Xu mouliu corrected it in time. His subjective fault is minimal and the social harm consequences are slight, so he can not be subject to administrative punishment.
In this regard, Guangdong securities regulatory bureau pointed out that the formation of inside information does not mean the determination of the whole matter involved in the information. The initial time of the motion, planning, decision-making or execution of the motion, planning, decision-making or execution personnel that affect the formation of insider information shall be recognized as the time of the formation of insider information. The formation time of the insider information of the proposed change of the company’s control caused by the trusteeship of Kangmei pharmaceutical is determined as July 10, 2020, which is in line with the facts of the case. On July 13, 2020, Guangzhou Pharmaceutical Group clearly reported the entrusted information related to Kangmei pharmaceutical in the internal meeting. Xu attended the meeting and learned the information, which was not his own judgment.
As Xu mouliu made a profit of 26400 yuan from trading “St Kangmei”, Guangdong Securities Regulatory Bureau confiscated all his illegal income and imposed a fine of 500000 yuan, and his defense opinions were not accepted.
Li mouyun and Yang mouling: buy on the same day and sell on the next day
As the trade union chairman of Guangzhou Pharmaceutical Group, Li mouyun learned the inside information slightly earlier than the first two. On July 10, 2020, Li mouyuan, chairman of Guangzhou Pharmaceutical Group, informed relevant personnel of Guangzhou Pharmaceutical Group and its subsidiaries of the trusteeship news, including Li mouyun, chairman of the group’s labor union. Similarly, Li mouyun also attended the enlarged meeting of the Party committee and the special trusteeship meeting three days later.
From the evening of July 10 to July 12, 2020, when Li mouyun communicated with his family that Guangyao group was hosting Kangmei pharmaceutical, his son Yang mouling, who lived with him, heard the information. On July 12, 2020, Yang mouling informed Li mouyun that he was ready to buy shares of Kangmei pharmaceutical, and Li mouyun said he could buy.
On July 13, 2020, Yang mouling bought and traded 238400 shares of “St Kangmei” in his own securities account, with a transaction amount of 579300 yuan. On the same day, after Guangyao group informed that it was not allowed to buy and sell “St Kangmei” shares, Li mouyun asked Yang mouling whether to buy “St Kangmei” shares and asked him to sell them. On July 14, 2020, Yang mouling sold all the “St Kangmei” shares he held in his securities account, with a transaction amount of 560200 yuan. After deducting transaction taxes, the transaction loss was 19800 yuan.
Such a “one-day tour” is also recognized as abnormal account transactions. According to the punishment statement, since the opening of the market on Monday, July 13, 2020, Yang mouling’s account declared to buy “St Kangmei” shares at 9:31:07 and 9:31:54. The securities account traded “St Kangmei” shares for the first time, and the buying will was firm; At 9:31:36 on the same day, 577800 yuan from the sale of other shares held by the account was used to buy “St Kangmei” shares. After Guangzhou Pharmaceutical Group requested that “St Kangmei” shares should not be traded, the securities account sold all the “St Kangmei” shares held. The relevant trading activities are highly consistent with the illegally obtained insider information, and the relevant trading behavior is obviously abnormal.
Based on this, Guangdong Securities Regulatory Bureau believes that Li mouyun divulged the inside information before the disclosure of the inside information, and Yang mouling used the illegally obtained inside information to buy and sell “St Kangmei” shares, which constitutes an insider trading behavior described in the securities law. Guangdong Securities Regulatory Bureau imposed a fine of 500000 yuan on both of them.
