The “timing of existence of material information” in insider trading should be objectively determined through an overall observation of the relevant events (Taiwan)

Grace Chiang

The Supreme Court rendered the 106-Tai-Shang-1503 Criminal Decision on April 12, 2018 (hereinafter, the “Decision”), holding that the timing of existence of material information in insider trading should be objectively concluded through an overall observation of the occurrence and results of all relevant events to determine upon which event that “the transaction is certainly to be fulfilled within a specific period.”  Such event is the specific timing of material information accordingly.

According to the facts underlying this Decision, it was held in the original decision on the case involving an intended tender offer for shares of Hsinchu International Bank by Standard Chartered Bank (hereinafter, the “Acquisition Case”) that Defendant A had committed the offense of insider trading under Article 171, Paragraph 1, Subparagraph 1 of the Securities and Exchange Law as amended on June 2, 2010 and Defendant B was acquitted, on the grounds including but not limited to the finding that the timing of material information had not existed until Fubon Financial Holding, a major shareholder holding 7% shares of Hsinchu International Bank, indicated its agreement to sell the shares.  Believing that the finding of facts and application of laws in the original decision were erroneous, the prosecution appealed.

According to the Decision, the Regulations Governing the Scope of Material Information and the Means of its Public Disclosure Under Article 157-1 of the Securities and Exchange Law (hereinafter, the “Regulations”) apply a principle involving “adopting the earliest in the multiple time points” as the timing of material information.  The purpose is to elucidate that different timings in a same procedure are all likely to be the timing for establishing material information.  To wit, the relativity in the establishment of material information is stressed.

It was further pointed out in this Decision that before material information exactly reaches the final stage where it should be disclosed or is suitable to be disclosed pursuant to law, there are usually a sequence of processing steps and time points involved in such evolution so that the details or events covered by the information are realized.  In addition, the development and evolution process vary by case.  Therefore, when multiple time points exist, the determination standard established in the TSC and Basic cases should be considered, by summarizing the occurrence and results of relevant events, and making an objective overall observation in order to determine which time point is “the timing that the information is certainly going to become a reality in a specific time period.”  This should be the basis for determining the specific timing of such material information.

Therefore, the Decision had the following findings.  After generally considering the relevant time points for this Acquisition Case based on relevant evidence, the original decision found that material information for this Acquisition Case began to brew as early as March 2006 and it was not until September 29, 2006 that it was conclusively announced to the public that “Standard Chartered Bank would acquire all ordinary shares of Hsinchu International Bank for NT$24.5 per share.”  During this process, however, since Fubon Group held around 7% shares of Hsinchu International Bank and was one of its major shareholders, if Fubon Group did not agree to the sale or even competed with Standard Chartered Bank for management right, it was very likely that Standard Chartered Bank would thus give up this Acquisition Case since it was unwilling to engage in a hostile takeover.  Therefore, when Standard Chartered Bank proposed the third tender offer, and Fubon Financial Holding indicated its consent to the sale and requested to raise the price to NT$24.5 per share, to which Standard Chartered Bank agreed, around 7:00 pm on September 20, 2006, which should be the timing when the material information concerning this Acquisition Case was crystalized.  Therefore, it was held in the original decision that “whether Fubon Financial Holding agreed to the sale” was material information about the certainty of whether this Acquisition Case would surely take place within a specific time period, and was material concerning whether the information would become a reality after a determination was made by objectively observing relevant facts and the results of the Acquisition Case.  Pointing out that the original decision has elucidated the reasons in detail with no legal violation, the Decision held that the original decision was upheld and the appeal was rejected therefore.