- Five employees-turned investors of SMB Leasing shares issued notice for suspected insider trading
- Staffers concerned including two females are from accounts and IT divisions
- First case of alleged insider trading in six years
Five employees of SMB Leasing Plc (formerly Seylan Merchant Bank) has been served notice by the Securities and Exchange Commission (SEC) for suspected insider trading mid last year of company shares, widely classified as a penny stock by the market.
In a move considered as the first clear case of insider dealing in six years, the SEC by virtue of the powers vested in it under its Act had conducted an investigation pertaining to purchases made in the shares of SMB Leasing PLC (SMB) by five employees of the company prior to information pertaining to a Rights Issue of shares with attached warrants relating to SMB was disseminated to the Colombo Stock Exchange on 17 August 2010.
The evidence elicited during the course of the above investigation suggested that the investors, being employees of SMB, had been privy to the unpublished price sensitive information pertaining to the Rights Issue of shares with attached warrants or at least regarding a new issue of shares relating to SMB at the time purchases in the said shares had been executed in their respective securities accounts.
As a result a decision was reached that the purchase of SMB shares by the aforesaid investors as referred to above, fall within the Insider Dealing provisions contained in Section 32 of the SEC Act as amended.
In view of this alleged capital markets abuse, the Members of the SEC Commission, at its 286th Meeting, held on 7 September 2011, having considered the findings of the investigation pertaining to suspected insider dealing in the shares of SMB, decided to issue Notice of Action to the five investors concerned, intimating that proceedings will be instituted against them in terms of the provisions of the SEC Act as amended.
Consequently, Notices of Action were issued on the aforesaid investors in respect of having engaged in Insider Dealing in contravention of Section 32 of the SEC Act.
The SEC statement didn’t specify who the staffers were or their ranks, but the Daily FT learns the five employees were working in the Accounts and IT divisions of SMB Leasing Plc, and were unsophisticated investors who appear to have been gullible or misled.
Some noted that SMB’s 2009 Annual Report did refer to a possible rights issue to raise funds to address the then negative net worth. However, the employees concerned had admitted that trades were done after an internal announcement by a senior manager of an impending Rights issue with free warrants.
Analysts viewed the SEC’s action as one that drove home the message that ‘big or small,’ regulatory action against insider dealing remains emphatic.
The last insider dealing case on which SEC took action was in 2005 when the then Chief Financial Officer of Nawaloka Hospitals and related parties were instituted with legal action against insider dealing.
In the quarter ended September 2010, which is likely to be the probable period of suspect trades, voting shares of SMB touched a high of Rs. 3.30 and a low of Rs. 1.40 before closing at Rs. 2.20. Though classified as penny stocks, the prices during the quarter were double the amount in comparison to the June 2010 ended quarter.
In June 2010 quarter the highest price was Rs. 1.60, lowest was Rs. 1.00 and the closing was Rs. 1.40. The September quarter is inclusive of the volatile July-August months when market rose to dizzy heights over a bull run on speculative stocks.
Subsequent to September quarter the heat on SMB waned and in the December 2010 quarter voting’s highest price was Rs. 2.30 and lowest was Re. 1 before closing at Rs. 1.90. Non-voting peaked to Rs. 2.20 and sank to a low of 70 cents before closing at Re. 1.
In comparison to 308.6 million shares traded in June 2010 quarter, September saw 1.02 billion shares of SMB trading whilst in December 2010 quarter it rose to 2.2 billion shares. In June quarter SMB sub divided its shares whilst the rights issue and free warrants were done in December 2010 quarter.
Period Lowest Highest Closing
June Q2010 1.00 1.60 1.40
Number of shares traded: 308.6 million worth Rs. 404.8 million
Sept Q 2010 1.40 3.30 2.20
Number of shares traded: 1.02 billion shares worth Rs. 2.1 billion.
Last week 2.60 3.10 2.70
52-week* 1.00 3.60
*52 weeks up to week ending 23 September 2011