Landmark Insider Trading Case: Dato’ Sreesanthan and Worldwide Holdings Berhad

by Messrs Lui Bhullar

Landmark Insider Trading Case: Dato’ Sreesanthan and Worldwide Holdings Berhad

Insider trading remains a high-priority enforcement issue in Malaysia’s capital markets. One of the most significant cases in recent years is the civil action brought by the Securities Commission Malaysia (SC) against Dato’ Sreesanthan a/l Eliathamby, culminating in a landmark decision by the Federal Court in 2024. This case reinforces the regulatory framework under the Capital Markets and Services Act 2007 (CMSA) and the importance of capital market regulatory compliance.

Background: Insider Trading Allegations

On 4 November 2020, the Kuala Lumpur High Court allowed the SC’s civil claim, ruling that Dato’ Sreesanthan had engaged in insider trading of Worldwide Holdings Berhad shares between 7 June 2006 and 11 July 2006, in breach of Section 89E of the Securities Industry Act 1983 (now Section 188 of the CMSA). The case involved material non-public information and significant financial gain.

The High Court granted the following reliefs:

• A declaration of insider trading;

• A payment of RM1,989,402.00, triple the trading gain of RM663,134.00;

• A civil penalty of RM1,000,000;

• A 10-year bar from serving as a director of any public listed company;

• Interest at 5% per annum from 5 November 2020 until full realisation;

• Legal costs of RM100,000 to the SC.

The Court of Appeal, on 5 September 2022, unanimously upheld the High Court’s findings and granted the SC an additional RM50,000 in costs.

Federal Court Appeal: Key Legal Issues Decided

On 25 April 2024, Dato’ Sreesanthan was granted leave to appeal to the Federal Court, which addressed three significant legal questions that clarified the law on insider trading in Malaysia.

The Federal Court unanimously ruled as follows:

Question 1: Is insider trading a strict liability offence?

Decision: No, insider trading under Section 89E(1) SIA / Section 188(1) CMSA is not a strict liability offence. It includes a mental element—the person knows or ought reasonably to know the information is not generally available. However, the SC does not need to prove intent to use the information, due to legislative amendments in 1998.

Question 2: How is materiality assessed?

Decision: Courts may consider post-trading conduct when assessing materiality. Materiality is a mixed question of law and fact and must be determined objectively, not limited to circumstances at the time of acquisition.

Question 3: Is the Attorney General’s consent required for civil proceedings?

Decision: No, the SC does not require the Attorney General’s consent to initiate civil action under Section 90A(5) SIA / Section 201(5) CMSA. The Attorney General’s powers under Article 145(3) of the Federal Constitution apply only to criminal prosecutions.

Legal Significance and Market Impact

This ruling by the apex court strengthens Malaysia’s securities enforcement regime, providing much-needed clarity on:

• The elements of insider trading;

• The threshold for materiality;

• The SC’s independence in civil enforcement without AG oversight.

For market participants, it reaffirms the need for robust capital market regulatory compliance, proper disclosure practices, and adherence to fiduciary obligations.

How Our Firm Can Help

As a leading capital market law firm, we assist clients in navigating complex regulatory and litigation matters involving:

• Insider trading investigations and defence representation;

• Civil and regulatory enforcement under the CMSA;

• Appeals to the Court of Appeal and Federal Court;

• Securities fraud legal advice for directors, investors, and professionals;

• Capital markets legal advisory and compliance audits;

• Representation before the Securities Commission Malaysia and SIDREC.

Our team of seasoned capital market lawyers in Malaysia, CMSA lawyers, and financial services lawyers in Malaysia are regularly called upon for matters involving investment fraud, market misconduct, and high-stakes capital market disputes.

Conclusion

The case of Dato’ Sreesanthan is a defining moment in Malaysia’s capital market litigation landscape. With the Federal Court’s ruling now settled, the legal principles governing insider trading are clearer than ever. If you are under investigation, pursuing a claim, or require strategic advice, consult a trusted capital market lawyer or securities lawyer in Malaysia.

Need expert legal advice on insider trading or securities litigation?

Contact our capital market law firm today for confidential consultation and tailored legal support.

Whether you need legal assistance with securities law, IPO, M&A, debt financing, or regulatory compliance, we are here to help you navigate the complexities of the capital markets and achieve your business objectives.

WhatsApp [+60143000970] or email [general@luibhullar.com] to schedule a consultation.