My dad passed me $50k to buy a single stock on his behalf based on a tip from his friend who works in that company. How do I know if it is considered to be insider trading? Will I be investigated? - Seedly

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Asked by Anonymous

Asked on 14 Mar 2019

My dad passed me $50k to buy a single stock on his behalf based on a tip from his friend who works in that company. How do I know if it is considered to be insider trading? Will I be investigated?

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Richard Woon Tian Jun
Richard Woon Tian Jun
Level 6. Master
Updated on 07 Jun 2019

Wow, that's really a pickle, let me just take out my biz law textbook to help you out here blows dust

okay, so according to Singapore's Securities and Futures Act (which prohibits insider trading) under section 219, people who are not connected to the corporation who recieve price -sensitive information will fall under this act, which means you. Even if you pass this information to another friend, who tells a stranger at a bar, who then buys that stock, that stranger will still be liable for violating the Securities and Futures Act for insider trading.

So your dad, you and of course your dad's friend will all be liable for insider trading if found out. I highly suggest to politely decline participating in this and talking your dad out of it - you are looking at possible criminal liability - you will be charged in court and if convicted, be deemed a convict. Under section 221 you will be looking at a max fine of $250 000 or imprisonment of up to 7 years. If you're lucky to get off with a lighter civil liability, you are still looking at a penalty of 3 times the profits gained, or $50 000, whichever is greater.

I got this all off "introduction to business law in Singapore" by ravi chandran 4th edition. If you don't believe me, buy the book, check page 278 -280. It's cheaper than getting fined 50k and going to jail for 7 years.

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Kenneth Lou
Kenneth Lou

15 Mar 2019

Oh wow this is intense. Anyway I remember that Business Law book very well! Ravi Chandran was a great professor.
Kenneth Lou
Kenneth Lou

15 Mar 2019

Lol I just read that last line: "It's cheaper than getting fined 50k and going to jail for 7 years."
Lee Jiahui
Lee Jiahui
Level 5. Genius
Updated on 15 Mar 2019

Not just insider trading... If the information is still not known, e.g. a really big contract (not publicly announced yet) that will definitely cause the share price to decrease/increase, that friend will also be breaching his own company's secrecy policies. If for whatever reason the "news" leaks out and somebody buys $50M or subtantially causing the price to increase/decrease by a big %, and somehow ring alarm bells with vested parties (e.g. another potential contract awardee) you may even be sued for spreading confidential information, or if the person is a government official, charge for breach of Official Secrets Act.

Dont be greedy lah... Integrity... That friend may lose his job too, you dont want to be guilty to cause it.

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Anthony Ong
Anthony Ong
Level 3. Wonderkid
Answered on 15 Mar 2019

This is a serious topic, so providing you with a serious answer.

To help assess whether this is insider trading (quoting from the SFA):

  1. is this information not generally available?
  2. do you know this information is not generally available?
  3. If the information were generally available, would it reasonably be expected to have a material effect on the share price?
  4. do you know that if the information were generally available, it might have a material effect on the share price?

Insider trading is where all 4 questions above are answered "yes", and because the consequences can be severe, you should be more conservative such that if all questions are answered "yes" or "maybe", you should not act.

To add, the SFA prohibits not only the actual trading based on knowledge, but also the communication of the above information to a person who might trade on it, so do not spread the information further as well.

Also the usual disclaimer that this is not intended to be legal advice and you are not entitled to rely on it etc etc.

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Dereth Tang
Dereth Tang
Level 2. Rookie
Answered on 15 Mar 2019

Insider trading. No doubt. Took one too many lessons on avoiding it.

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Dydy Nalor
Dydy Nalor
Level 1. Freshie
Answered on 14 Mar 2019

Let go

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