Paper tigers no more

Fresh off of a major criminal conviction, a securities prosecutor last summer denounced insider trading as “an ‘insidious mischief’ which threatens the integrity of financial markets and public and investor confidence in the markets.” SFC Enforcement Reporter, Issue No. 63, Aug. 2009. Just last month, another enforcement agency in the midst of a number of high-profile insider trading investigations proclaimed that “insider dealing is a serious crime and we are not afraid to pursue cases through the criminal courts.” Michael Herman, “Campaign against insider dealing goes on despite acquittals,” The Times of London, June 4, 2010. These pronouncements came, not as one might expect from the U.S. attorney for the Southern District of New York or from the U.S. Securities and Exchange Commission (SEC), but rather from thousands of miles away in Hong Kong and the United Kingdom. Prosecution of insider trading offenses is no longer the sole purview of U.S. prosecutors and regulators. Recent high-profile cases in Hong Kong and the United Kingdom suggest that foreign prosecutors and regulators could soon match — if not exceed — the aggressiveness of their U.S. counterparts in enforcing insider trading laws.

Although a number of foreign countries have had laws on their books, until recently insider trading had gone largely unenforced, at least criminally. For instance, the United Kingdom and Hong Kong made insider trading a criminal offense in 1980 and 2003, respectively, and had civil prohibitions in place long before that. However, until 2008, neither Hong Kong nor the United Kingdom had brought a single criminal prosecution for insider trading.