Insider trading is a major offence under section 188 of the Capital Markets and Services Act 2007 (“CMSA”) which may attract both criminal liability and civil liability.
There are several elements required to be proven in considering whether there is insider trading, one of which is the materiality of the inside information. This is the question of whether, if the information was made generally available, a reasonable person would expect it to have a material effect on the share price? The interesting question is at which point in time does the court assess the materiality of the information? Would it be only at the time the impugned trade is carried out by the insider, or after the trade occurs such as information in a subsequent announcement made by the company? This was one of the issues considered by the Federal Court Judge Datuk Vazeer Alam Mydin Meera in the case of Sreesanthan a/l Eliathamby v Suruhanjaya Sekuriti Malaysia [2025] MLJU 2690 (FC).
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Background Facts
The case concerns the Securities Commission of Malaysia (“SC”) who instituted proceedings against Sreesanthan a/l Eliathamby (“Appellant”) for insider trading involving the acquisition of 600,000 shares in Worldwide Holdings Berhad (“Worldwide”), which was a public listed company. The relevant timeline of the background facts is set out below:
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The High Court’s decision
On 4 November 2020, the High Court allowed the SC’s claim and declared the Appellant to have breached the statutory prohibition of insider trading and ordered him to pay the SC RM1,989,402 being an amount 3 times the gains made from the inside information. The Appellant was also barred from being a director of any public listed company for 10 years with effect from 19 November 2020.
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The Court of Appeal’s decision
On 5 September 2022, the Court of Appeal unanimously dismissed the Appellant’s appeal and affirmed the High Court’s decision, holding that the Appellant had direct involvement in the corporate exercise and possessed the inside information, which he knew was confidential and not publicly available when he purchased the shares, before the information was made public through media or announcement. On materiality, it was concluded that the information was of a kind that a reasonable person would expect to materially affect the price or value of Worldwide shares.
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The Federal Court’s decision
The Federal Court dismissed the Appellant’s appeal and affirmed the Court of Appeal’s judgment. One of the issues considered by the Federal Court was whether the relevant time to assess the materiality of the alleged inside information is at the time the impugned acquisition occurs, or a court may consider the facts and circumstances occurring after the time of the impugned acquisition.
The Federal Court held that in determining the materiality of information in the possession of an insider, the court shall not merely confine itself to the facts and circumstances occurring at the time of any impugned acquisition or trade of the securities but shall also take into consideration the facts and circumstances after the time of the said impugned acquisition or trade. Materiality is a question of mixed law and fact, which is to be determined objectively from a reasonable investor’s perspective.
Based on section 89B of the Securities Industry Act 1983 (now section 185 of the CMSA) which provides that materiality refers to “such information which would or would tend to, on becoming generally available, influence reasonable persons who invest in securities in deciding whether or not to acquire or dispose of such securities, or enter into an agreement with a view to acquire or dispose of such securities”, the Supreme Court of Canada in Sharbern Holdings v Vancouver Airport Centre Ltd [2011] S.C.J. No. 23 holding that contextual evidence, concurrent or subsequent evidence, behaviour evidence, and evidence of common knowledge are all relevant to the materiality assessment, and several Malaysian cases applying Sharbern, the Federal Court found support in the view that the courts may determine materiality by looking at post-acquisition information, conduct, behaviour, events or evidence relevant to the trade.
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Key takeaways
Effectively, the court took a holistic approach in determining materiality of information. The court will not confine itself to the facts and circumstances occurring at the time of the impugned acquisition, but will also take into consideration the post-event information relevant to the impugned trade. These include:
• Price movements and sensitivity of the stock after the information becomes available
• Reaction of the public after the information becomes available
• Any information that becomes available before, at the time of, and after trading
• The conduct of the insider before, at the time of, and after trading
The Federal Court upheld the view that there is no need for a complex and elaborate formulation of what constitutes material information. The facts of the case will be looked into to determine if any kind of information at any point in time relating to the impugned trade of shares would be relevant to determine materiality.
Corporate insiders must become fortune tellers? Events after trading can be evidence of insider trading
Insider trading is a major offence under section 188 of the Capital Markets and Services Act 2007 (“CMSA”) which may attract both criminal liability and civil liability.
There are several elements required to be proven in considering whether there is insider trading, one of which is the materiality of the inside information. This is the question of whether, if the information was made generally available, a reasonable person would expect it to have a material effect on the share price? The interesting question is at which point in time does the court assess the materiality of the information? Would it be only at the time the impugned trade is carried out by the insider, or after the trade occurs such as information in a subsequent announcement made by the company? This was one of the issues considered by the Federal Court Judge Datuk Vazeer Alam Mydin Meera in the case of Sreesanthan a/l Eliathamby v Suruhanjaya Sekuriti Malaysia [2025] MLJU 2690 (FC).
.
Background Facts
The case concerns the Securities Commission of Malaysia (“SC”) who instituted proceedings against Sreesanthan a/l Eliathamby (“Appellant”) for insider trading involving the acquisition of 600,000 shares in Worldwide Holdings Berhad (“Worldwide”), which was a public listed company. The relevant timeline of the background facts is set out below:
.
The High Court’s decision
On 4 November 2020, the High Court allowed the SC’s claim and declared the Appellant to have breached the statutory prohibition of insider trading and ordered him to pay the SC RM1,989,402 being an amount 3 times the gains made from the inside information. The Appellant was also barred from being a director of any public listed company for 10 years with effect from 19 November 2020.
.
The Court of Appeal’s decision
On 5 September 2022, the Court of Appeal unanimously dismissed the Appellant’s appeal and affirmed the High Court’s decision, holding that the Appellant had direct involvement in the corporate exercise and possessed the inside information, which he knew was confidential and not publicly available when he purchased the shares, before the information was made public through media or announcement. On materiality, it was concluded that the information was of a kind that a reasonable person would expect to materially affect the price or value of Worldwide shares.
.
The Federal Court’s decision
The Federal Court dismissed the Appellant’s appeal and affirmed the Court of Appeal’s judgment. One of the issues considered by the Federal Court was whether the relevant time to assess the materiality of the alleged inside information is at the time the impugned acquisition occurs, or a court may consider the facts and circumstances occurring after the time of the impugned acquisition.
The Federal Court held that in determining the materiality of information in the possession of an insider, the court shall not merely confine itself to the facts and circumstances occurring at the time of any impugned acquisition or trade of the securities but shall also take into consideration the facts and circumstances after the time of the said impugned acquisition or trade. Materiality is a question of mixed law and fact, which is to be determined objectively from a reasonable investor’s perspective.
Based on section 89B of the Securities Industry Act 1983 (now section 185 of the CMSA) which provides that materiality refers to “such information which would or would tend to, on becoming generally available, influence reasonable persons who invest in securities in deciding whether or not to acquire or dispose of such securities, or enter into an agreement with a view to acquire or dispose of such securities”, the Supreme Court of Canada in Sharbern Holdings v Vancouver Airport Centre Ltd [2011] S.C.J. No. 23 holding that contextual evidence, concurrent or subsequent evidence, behaviour evidence, and evidence of common knowledge are all relevant to the materiality assessment, and several Malaysian cases applying Sharbern, the Federal Court found support in the view that the courts may determine materiality by looking at post-acquisition information, conduct, behaviour, events or evidence relevant to the trade.
.
Key takeaways
Effectively, the court took a holistic approach in determining materiality of information. The court will not confine itself to the facts and circumstances occurring at the time of the impugned acquisition, but will also take into consideration the post-event information relevant to the impugned trade. These include:
The Federal Court upheld the view that there is no need for a complex and elaborate formulation of what constitutes material information. The facts of the case will be looked into to determine if any kind of information at any point in time relating to the impugned trade of shares would be relevant to determine materiality.
About the authors
Yap Cheng Yah
Partner
Corporate & Capital Markets
Halim Hong & Quek
[email protected]
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Sherzanne Lee
Associate
Corporate & Capital Markets
Halim Hong & Quek
[email protected]
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