KKO:2024:25 – Aggravated abuse of insider information

Record number: R2022/276
Date of issue: 5 April 2024
ECLI:FI:KKO:2024:25

Background to the matter and questions before the court

A, the CEO and member of the management team of B Oyj, purchased a total of 550 000 shares of B Oyj for EUR 337 071 on 28 October and 11 November 2014. On 5 December 2014, B Oyj published a stock exchange release stating that the company had received a large order from X. It was stated that the four-year agreement was a continuation of the long customer relationship between the companies, and its value was EUR 8 million, including services and software licences of the information system solution.

The District Court attributed abuse of insider information to A.

The Court of Appeal dismissed the charge, finding that the information in question could not be considered to have had a significant effect on the value of the company’s share and that A had not had accurate information for estimating the impact of the order on the share value.

The question before the Supreme Court was whether A, when purchasing shares of B Oyj, had taken advantage of the insider information referred to in Chapter 51 of the Criminal Code of Finland and, if A was found guilty of an offence, whether the act was aggravated and what would be decided concerning the punishment and forfeiture of the proceeds of crime.

Supreme Court Assessment

The Supreme Court found that the information A had concerning the order clearly met the requirement concerning the accuracy of insider information that there had been a real possibility for the project to be realised. The potential existence of risk factors related to receiving the order or its value was not significant. This was not vague or general information based on which it would not have been possible to draw any conclusions on its potential impact on the share value.

It was undisputed in the case that X had been an important customer for the company. The order in question included both new technology as well as the maintenance of old information systems. The order meant that the customer relationship would continue for several years. With regard to its nature, the order did not differ from the ordinary business of the company. However, the approximate total value of the order of EUR 8 million was significant compared to the volume of the company’s other orders as well as the company’s turnover of a bit over EUR 80 million in 2014, despite the fact that the order was divided over several financial periods. The order had also been described as important in the information published by the company. When issuing the purchase orders, A knew that the value of the agreement being negotiated exceeded the value of EUR 1.0 million that was considered significant in the communication practice of the company.

According to the Supreme Court, the deciding factor when assessing the significance of the impact of information was the perspective of a sensible investor. The significance had to be assessed from the point of view of an objective outside observer in the situation at the time of the act. Taking account of the total value of the order in question, its financial impact on the company was considerable. For its part, the information reinforced the impression given to investors concerning the positive development of the company’s financial situation. The accuracy of insider information does not require that the direction of the impact on the price would be predictable. However, with regard to the order being discussed, it was likely that providing information about it would create a positive reaction concerning the price on the market. Taking account of the fact that the company itself stated in its interim financial report that it considered an order worth at least EUR 1.0 million to be significant with regard to the value of securities, among other things, after finding out about the order worth approximately EUR 8 million in question, a sensible investor would have acted based on the information rather than considering it meaningless when making an assessment on the sale of the financial instrument.

The Supreme Court found that the increase of the share price that followed the publication of the stock exchange release on the order in question supported the conclusion that the order had a significant impact on the value of the company’s share. The change in the share price could not be considered minor in relation to a typical change in the price of the company’s share. The value of the company’s share increased 6 cents in total during two trading days, and the increase of 3 cents that occurred already during the first incomplete trading day was a relatively significant change in value.

The Supreme Court found that A’s knowledge of the project concerning X’s order and its progress had the significant impact on the value of the company’s share required for insider information. The information gave A a more favourable position on the stock market compared to other investors.

As the CEO of the company, A was responsible for the day-to-day business of the company, and A had reported to the company’s board of directors on the development of the company’s financial position. Due to A’s position, A had received information necessary to evaluate the scope and financial significance of the order in question. Therefore, A had known about the progress of the negotiations on the order and the scope of the order when undertaking the purchase of shares. As the CEO of the company, A must have understood the importance of the information concerning the order for investors and that the bulletin on the order that would be published later on 5 December 2014 would likely have an impact increasing the share value. The deciding factor was that A had known the facts that served as the basis for the formation of insider information and that are used in carrying out the legal assessment concerning insider information. Therefore, A must be considered to have acted intentionally. In this assessment, no significance was to be given to the fact that A had discussed the share purchase in advance with the company’s lawyer or that the company had not considered pending orders of this magnitude as insider projects.

As A had undertaken the share purchase while aware of the significance of the order on share value, A must be considered to have acted in order to obtain benefit. When assessing the intent to obtain benefit, it was not important that A may also have had other, acceptable reasons to invest funds into the company’s shares.

The information on orders to be expected that constituted insider information was positive for the company, and the value of the purchase of shares by A was high. With regard to the magnitude of the procurement and the predictable effects of the insider information on share value, it was found that an especially large benefit was sought with the sale.

When assessing the overall aggravated nature of the act, it could be taken into account that A’s action were not especially methodical. At the same time, A’s particularly responsible position as the CEO of the company supported considering the act aggravated also when assessed as a whole.

Conclusion

The Supreme Court found that A was guilty of aggravated abuse of insider information and sentenced A, taking the trial being delayed into account, to four months of conditional imprisonment and ordered A to forfeit the proceeds of crime, EUR 36 929, to the State.

Opinions of dissenting members

Two members found that the act should not be considered aggravated when assessed as a whole, and that A should have been sentenced for non-aggravated abuse of insider information.