| Summary: | 碩士 === 中原大學 === 財經法律研究所 === 105 === Insider trading, defined as a person with a specific identity gaining access to and using non-public information to sell or purchase securities and affecting the market, is prohibited by the Securities and Exchange Act in Taiwan. To prevent insider trading, criminal penalties were established in 1988, and the severity of penalties were increased in 2000 and 2004. However, how successful have these prevention methods been? Not only has the number of insider trading cases been increasing, but the varying perspectives of judges and prosecutors towards material information play an influential role in insider trading cases. Differing opinions then lead to stalled cases, and the accusations go from causing uproar in the capital market at the beginning of the investigation to gradually being forgotten by the public.
This thesis analyzes how judges and prosecutors determine the materiality of insider information through case study and quantitative methods. Through case study, the common perspectives towards mergers and acquisitions (M&A) among the various levels in the Court were found to include the following: 1. M&A includes many stages; 2. A standard for a specific point of time has not been established; 3. The initial stage in an M&A should not be used as a point of materiality; 4. “Certainty” about an M&A should not be used as point of materiality; 5. Point of materiality should be when specific agreements have been reached and not during the preliminary consultations between two parties. The points of contentions include: 1. Not checking whether the material information is true; 2. Whether the passing of M&A or stock conversion ratio in a board meeting is considered a point of materiality; 3. Agreement on important issues in M&A Agreements is considered a point of materiality, but there is no standard criteria on what constitutes important issues; 4. Establishing the point of materiality.
In comparison to the news of M&A, the information that comes from a company’s financial and business report is different. M&A must go through a series of procedures, thus, it is difficult to establish when the information is clear or material, leading to differing perspectives. However, since the company operates daily, the financial and business information from a company will change according to daily operations. Through the passage of time, a company’s financial and business information can be considered objective historical information, and thus the materiality of the information is established and ascertained.
Through study of related cases, excluding the controversial cases of HannsTouch Solution Incorporated, DBTEL Taiwan Limited, Optimax Technology Corporation and BenQ, it can be seen that there is less division in the court’s perspective on the materiality of financial and business information in comparison to M&A cases. The main reason is that the news of the reduction of a company’s financial prediction occurs during its operation time, thus the material information is objectively established and ascertained. Insiders would know the news when the company tallies up internal operational figures. In other words, the former is the objective truth, and the latter is the subjective truth, which are two completely different things.
Examples from empirical studies, including initial encounter of both parties, due diligence, signing of documents, agreement on costs, passing of board meetings, or the passing of stockholders meeting, contribute to the understanding of a judge’s perspective towards the materiality of information. It appears that for most judges and prosecutors, the signing of a letter of intent and memorandum is considered materiality of information.
In order to understand whether personal background factors, such as judicial characteristics, trial level, annual salary, courses taken on securities and exchange, undertaking cases regarding insider trading, and judicial opinion influence the perspective on the materiality of insider trading, regression analysis was conducted. The results demonstrate that learning about the Securities and Exchange Act affects judges and prosecutors’ perspective on whether to define material information as information that would influence stock prices or investors’ willingness to invest if publicly announced.
In addition, the results from the independent samples t-test shows that there is variation in judges’ and prosecutors’ perspectives on defining material information as information that would influence stock prices or investors’ willingness to invest if publicly announced. In fact, judges tend to disagree.
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