Extract taken from 'The Securities Ligation Review – edition 5'
Public enforcementi Forms of action
The SC may take any of the following enforcement action:
- institute criminal prosecutions;
- institute civil proceedings; and
- issue administrative sanctions.
Criminal actions are pursued when the breach of securities laws significantly affects the market and where the alleged wrongdoer exhibited a significant degree of deliberateness or gross misconduct. Civil actions are pursued mainly to deprive the wrongdoers from illegally earned gains and compensate investors. In certain circumstances, the SC initiates civil actions to obtain civil injunctions to prevent the dissipation of public listed companies' assets resulting from market misconduct. Administrative sanctions are imposed for breaches that require immediate action and remedy. This includes the revocation and suspension of capital markets licence, reprimands and imposition of fines.
Bursa Securities may take enforcement action against a listed company and its directors and key officers, and an adviser for breach of the Listing Requirements. Bursa Securities may also take enforcement against a broker or other registered persons for breach of the Business Rules.ii Procedure
Before the SC takes any enforcement action, it will carry out an investigation into the relevant act or omission that is contrary to the provisions under the securities laws. The investigation process generally involves gathering of documentary and oral evidence, including interviewing witnesses. The SC has wide investigative powers under the SCMA. For example, under Section 128 of the SCMA, the SC may search any person whom it has reason to believe has on his or her any object, article, material, thing, property, book, minute book, account, register or other document including travel or other document necessary, in the SC's opinion, for the purpose of investigating any offence under any securities law. The SC may also require the surrender of any travel documents of the alleged wrongdoer pursuant to Section 132 of the SCMA.
Failure to cooperate with or obstructing an investigation officer of the SC in carrying out an investigation of a securities offence is a criminal offence.
If the SC is satisfied that a case is made out against the wrongdoer, it will issue a show cause letter containing details of the SC's findings to the wrongdoer. The show cause letter effectively gives the wrongdoer an opportunity to be heard before any enforcement action is taken by the SC. In practice, the wrongdoer is given 14 days (which may be extended at the SC's discretion) to prepare his or her response, and the wrongdoer has the right to seek legal representation in preparing his or her response.
Before Bursa Securities takes any enforcement action, it will conduct its own investigation into the possible breach of Listing Requirements or Business Rules. In the course of their investigation, where possible breaches of the CMSA or CA are found, Bursa Securities will refer the matter to the SC or the CCM, where applicable.Criminal prosecution
Under Article 145(3) of the Federal Constitution of Malaysia, the Attorney General as the public prosecutor has the power, exercisable at his or her discretion, to institute, conduct or discontinue any proceedings for an offence. The SC, however, is empowered to institute criminal prosecution for offences under the CMSA, SCMA and SICDA with the written consent of the Attorney General. The SC's prosecuting officers may conduct the prosecutions for such offences. In addition, the Attorney General has appointed some of the SC's prosecuting officers as deputy public prosecutors to prosecute certain securities cases.
In a criminal prosecution, the defendant will be brought to court and asked whether he or she pleads guilty or not. If the defendant pleads guilty, there will be no trial and the court will pass the sentence on the defendant. If the defendant pleads not guilty, the matter will proceed to trial.
Before commencement of the trial, the following information and documents must be delivered to the defendant:
- a copy of the information made under Section 107 of the Criminal Procedure Code relating to the commission of the offence to which the accused is charge, if any;
- a copy of any document which would be tendered as part of the evidence for prosecution; and
- a written statement of facts favourable to the defence of the accused signed under the hand of the person conducting the prosecution.
The SC may commence civil proceedings against the alleged wrongdoer whether or not criminal prosecution has been instituted against the wrongdoer.SC administrative sanctions
In determining the type of administrative sanction, the SC assesses the nature and severity of the breach, the conduct of the wrongdoer after the breach, and any previous regulatory record.Bursa Securities enforcement actions
Where Bursa Securities proposes to take an enforcement action against a person under the Listing Requirements or Business Rules, it will serve the person a written notice specifying the nature and particulars of the breach the person is alleged to have committed. The person may submit a written response to Bursa Securities' notice within the time stipulated in the notice. After conclusion of an enforcement proceeding, Bursa Securities will notify the person in writing of the decision.
Notwithstanding the above, Bursa Securities may initiate expedited enforcement proceedings against a person whom enforcement action is proposed to be taken, for prescribed breaches.iii SettlementsCriminal prosecutions
The SC may, with the consent of the Attorney General, reach an agreement with the person who has committed a criminal offence. If the person pays the amount offered in the compound, no criminal prosecution will take place. The SC's website lists the various criminal prosecution cases that it has compounded.Civil proceedings
The SC may enter into legally binding settlements with the person who has contravened securities laws. The SC's website lists the various regulatory settlements it has entered into with individuals and companies, in which civil claims are settled without admission or denial of liability.Bursa Securities enforcement actions
In a full enforcement proceeding, a person in breach of the relevant provisions under the Listing Requirements or Business Rules may propose to enter into a settlement agreement with Bursa Securities, in which the parties will agree on certain facts, liability or penalty in respect of the breach.iv Sentencing and liabilityCriminal prosecutions
Breach of statutory obligations under the CMSA may attract the following criminal liability, among others:
- under Section 188 of the CMSA, if a person is guilty of an offence relating to insider trading, imprisonment for a term not exceeding 10 years and a fine of not less than 1 million ringgit;
- under Section 215 of the CMSA, if a person is guilty of an offence relating to submission to the SC of false or misleading statements, imprisonment for a term not exceeding 10 years and a fine not exceeding 3 million ringgit;
- under Section 246 of the CMSA, if a person is guilty of an offence relating to issuance of prospectus containing false or misleading statements or material omission, a fine not exceeding 3 million ringgit or imprisonment for a term not exceeding 10 years or both; and
- under Section 317A of the CMSA, if a person is guilty of an offence relating to causing wrongful loss to the listed corporation or any of its related corporations, imprisonment for a term that shall not be less than two years but not exceeding 10 years and a fine not exceeding 10 million ringgit.
Under the CMSA, the SC is empowered to institute civil proceedings for any of the following court orders, among others, to:
- recover an amount not exceeding three times the gross amount of pecuniary gain made or loss avoided and claim civil penalty up to 1 million ringgit;
- recover an amount equal to three times being the difference between the price at which the securities were acquired or disposed of, or agreed to be acquired or disposed of, by the insider or the other person, and the price at which they would have been likely to have been acquired or disposed of at the time of the acquisition or disposal or agreement, as the case may be, if the information had been generally available, and claim civil penalty up to 1 million ringgit;
- recover the amount of loss or damage on behalf of persons who suffered loss or damage by reason of the conduct of another person who has contravened any provision of Part VI of the CMSA or any regulations made under the CMSA;
- direct the person in breach to comply with the provisions under the Take-Overs Code; and
- remove or bar a chief executive or director from being a chief executive or director of any public company for a period of time.
Under the CMSA, the SC may impose any of the following administrative sanctions, among others:
- direct the person in breach to comply with the relevant securities laws;
- penalty in proportion to the severity or gravity of the breach up to 1 million ringgit;
- require the person in breach to take such steps as the SC may direct to remedy the breach or to mitigate the effect of such breach, including making restitution to any other person aggrieved by such breach;
- in the case of a breach of Part VI of the CMSA or guidelines issued pursuant to Part VI of the CMSA, refuse to accept or consider any submission under Part VI of the CMSA;
- in the case of promoters or directors of a corporation, in addition to the actions that may be taken under paragraphs (a) to (e) above, impose a moratorium or prohibition against trading and dealing in securities, or issuing a public statement that the retention of office by the director is prejudicial to the public interest; or
- in the case of licensed capital markets intermediaries, refuse renewal of their licence, or revoke or suspend their licence.
Under the Listing Requirements, the enforcement actions that Bursa Securities may take include:
- reprimanding privately or publicly;
- imposing a fine of up to 1 million ringgit;
- suspending the trading of listed securities; and
- delisting a listed corporation.
Under the Business Rules, the enforcement actions that Bursa Securities may take include:
- reprimanding privately or publicly;
- imposing a fine of up to 1 million ringgit;
- suspending the right to trade; and
- removing a person from the register.