Insider Dealings in Nigeria

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“EXAMINE THE EFFECTIVENESS OF THE PROVISIONS OF THE INVESTMENT AND SECURITIES ACT (ISA 2007) ON INSIDER TRADING AGAINST THE BACK DROPS OF THE PROVISIONS OF THE CAMA 1990 AND THE COMMON LAW ON THE DUTIES OF DIRECTORS OF COMPANIES IN PREVENTING INSIDER RELATED OFFENCES AND PROTECTING THE INTEGRITY OF THE SECURITIES MARKET IN NIGERIA PRIOR TO AND IN THE MODERN ERA OF THE INTERNET.”

SUBMITTED BY
AYODELE DOYINSOLA .O
LAW/2007/100

DEPARTMENT OF LAW
OBAFEMI AWOLOWO UNIVERSITY
ILE-IFE OSUN STATE

TO
PROFESSOR M.T. OKRORODUDU-FUBARA

IN PARTIAL FULFILMENT OF THE COURSE “LAW OF BUSINESS ASSOCIATION” (BUL 502) Concept of Insider dealing
One of the areas of company law in which the general equitable rules seem to be inadequate to protect the outsider is the use of insider information to secure undue advantage over the outsider in the purchase or sale of corporate securities. Insider dealing has been defined to occur when a person or group of persons who being in possession of some confidential and price sensitive information not generally available to the public, utilizes such information to buy or sell securities for the benefit of himself, itself or any person. In simple parlance, Insider dealings refers to the ability of key employees of a company to profit from knowledge or information of a company that has not yet become public. It has been further explained as the premature blowing or utilization of the “gun-powder” to reach unfair economic and financial advantage. From the above definition, it is important to note that particular emphasis are placed on certain factors necessary to satisfy the concept of insider trading: * The information must have been obtained from a source within the company * The information has to be a price-sensitive one

* The information must be an unpublished one
* The informed stakeholder must have acted upon the information However, it is not the case that there are clear-cut rules as to determining the existence of these factors, but they remain relevant in the light of this discussion. An insider could be an executive or an ordinary member of the company. If the knowledge had accrued to him as a result of his relationship with the company, such a person is an insider.

What is wrong with insider dealings?
Why out-law an act simply because it seems to create an undue advantage? Is this more of a moral wrong than a crime? Some have argued that what causes injury or loss to outsiders is not what the insider knew or did, rather it is what they themselves [the outsiders] did not know. It is their own lack of knowledge which exposes them to risk of loss or denies them an opportunity to make a profit. However, the opposing argument appeals to the fiduciary and statutory relationship of the insider to the company. Stating that anyone occupying a position in which he holds a fiduciary duty to someone must deliver every profits he derived by occupying the position to the person he owes the duty. the other argument is that of fair play amongst stake-holders of a company and to prevent unhealthy atmosphere for business transactions. The latter position would be seen to be more equitable than the former argument. This is because it had been utilized to its maximum abuse especially by directors and top officials of companies. According to Professor Olawoyin, insider trading might affect the judgement and recommendations of directors with regards to matters such as declaration of dividends and investments in other companies. He asserts that the practice “encourages the directors to indulge in short swing speculation in the securities of their company. All this is likely to be caused, partly at least, by the prospect of gain open to directors through their dealings in such securities. Therein lies the public policy element in fixing directors with legal obligations to disclose an unpublished price-sensitive information before trading begins.

Duties of Directors (under Common...
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