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Ruling No. 108-Tai-Shang-Da-4349 Rendered by the Grand Chamber of the Supreme Court on May 19, 2021—Method of Calculating Criminal Proceeds from Insider Trading and the Extent of the Proceeds
Neither Article 157-1, nor Subparagraph 1, Paragraph 1, Article 171 of the Securities and Exchange Act stipulates how to calculate the value of property or property interests gained from the commission of an offense of insider trading, except that some exemplified explanations of principles were given in the legislative intent to prescribe the articles. However, such exemplified explanations were unable to govern various types of insider trading. Consequently, opinions on how to calculate criminal proceeds from insider trading have been divided for many years. That’s why a petition for a ruling on this issue was filed with the Grand Chamber. On May 19, 2021, the Grand Chamber rendered a ruling summarized below.
一、An offense of insider trading is deemed committed, regardless of whether the actor has any intent to use the inside information to buy or sell any securities to gain any proceeds or hedge any risks. Hence, all the values of the actor’s property or property interests should be included in the calculation, regardless of whether there is any causal relationship between such interests and the inside information. Moreover, the legislative purpose to stipulate offenses of insider trading is to prevent the offenders from illegitimately enjoying criminal proceeds. Hence, when calculating criminal proceeds from insider trading, the court should not be required to take into account the economic or non-economic factors that may impact rises or falls of stock prices.
二、There are two ways to calculate the value of an actor’s property or property proceeds, depending on whether the actor’s proceeds have been realized.
(1) Realized Profits
For securities purchased (or sold), or subsequently resold (repurchased) before the disputed information is made public or within the retention period after the information is made public, the profits shall be calculated on the basis of the actual income, i.e., the difference between the prices of the securities before and after the transaction multiplied by the number of the securities transacted.
(2) Unrealized Profits
Regarding securities purchased by an actor after learning of positive inside information and continually held and not sold by the actor after the information is made public, or securities sold by the actor to hedge risks and not bought back after receiving negative inside information, the pro-forma proceeds shall be calculated using the method of calculating the civil damages incurred by insider trading under Paragraph 3, Article 157-1 of the Securities and Exchange Act, i.e., the difference between the price at which the actor purchases (or sells) the securities and the average closing price of the securities in the 10 business days after the date of public disclosure, multiplied by the number of the securities.
三、Regarding securities transaction taxes and costs such as transaction tax and charges, both judicial opinions and the legislative intent to enact Paragraph 2, Article 171 of the Securities and Exchange Act promulgated on January 31, 2018, indicated that costs should be deducted in calculation of the value of property or property interests gained from the commission of an offense.