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Research on the Disgorgement of Short-swing Profits

Author: PengZuo
Tutor: YuYing
School: Jilin University
Course: Civil and Commercial Law
Keywords: short-swing trading disgorgement insiders
CLC: D922.287
Type: Master's thesis
Year: 2010
Downloads: 211
Quote: 1
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Abstract

In general, the investors who have more information will gain more profits in the same situation. The directors, supervisors, senior officers and big stockholders who hold certain stock in the company can be easily accessible to inside information, and gain profits through disgorgement. The American States Senator and Monetary Commission pointed out in the investigation report that the insider trading and especially the disgorgement was the arch-criminal which gave rise to the collapse of insecurity market and the economic crisis of the whole American. So the disgorgement brings great jeopardy, which also breaks the fairness, justice and the open of security market and attacks the confidence of the investors. Supervisors of different countries adopt strict regulations to forbid it. One of the regulation systems is“disgorgement of short-swing insider profits”,which prohibits insiders from being involved in such trade by pre-situated rules of threatening,and which is a definitely advanced system.Disgorgement has many vague places both in theory and in practical operation, and there are many deficiencies in the legislation of Article 47 of SECURITIES LAW of P.R.C. This thesis adopts comparative analysis to disgorgement, puts forward problems and provides relevant countermeasures hoping that it can help the development on the theory and practice of disgorgement.This thesis is divided into five parts.The first part is the foundation and the value of disgorgement of short-swing profits. As to the foundation, some scholars think that the profits don’t belong to the insiders for sure, the expense of achieving insider information comes from the corporation and it’s the compensation to the damage of the corporation’s external credit. I think the profound foundation is that it is a kind of punishment on the insider because of betray to the loyalty. As to the value, it concludes two points. One is that disgorgement of short-swing profits is the precautionary measure to the insider trading and it can prevent the action. The other one is that disgorgement of short-swing profits protects the belief to the security market, the justice and the fairness.The second part is the foundation of the application of disgorgement of short-swing profits--- the system of insider sharing holding report. The basic condition to make disgorgement of short-swing profits useful is to make sharing holding condition of insiders fully public, which makes the sharing holding condition and transaction of insiders in special timing under supervision from the company and public investors. Through the comparison among the systems of America, UK, Taiwan and mainland, I raise the deficiencies and give some advice to perfect. One is whose duty to reveal the message should be not only the public company, but also the directors, supervisors, senior officers and big stockholders who hold certain proportion of stocks in the company. The other one is that our country should introduce in the system of registering the insider trading.The third part is the subject of disgorgement of short-swing profits. It concludes the insiders (the directors, supervisors, senior officers and big stockholders who hold certain proportion of stocks in the company), and the beneficial owners. COMPANY LAW of our country points out that beneficial owner means directors, supervisors, the secretary of board in public companies and the people regulated in company charter. SECURITY TRANSACTION LAW in 1934 of America points out that the board member is every board member in the company and whoever doing the similar work in every association. The beneficial owner is any person who has or partake the monetary benefit from security concerned through the contract, arrangement, memorandum and other measures directly or indirectly, who is ordinarily the spouse, children, other relatives and friends.The forth part is the behavior of regulation. It is the behavior that insiders buy after selling or sell after buying in six months to gain profits. The thesis analyze detailed from three aspects: reverse trading, the statutory period of six months, the profits gained. Of course, not all the reverse trading which gained profits from the statutory period of six months are disgorgements, some are exempted statutorily. SECURITY LAW in our country prescribes one exemption which is that the security company buys the surplus stocks to hold over five percent company shares. The exemptions in American law are more than our country, such as Cohen regulation and the situation of acquiring the stocks by carrying out the former contract.The fifth part is the implement of disgorgement of short-swing profits. The first is the disposal to the superposition between disgorgement and insider trading. Because the insiders violate two different regulations on two different purposes, he must take on the responsibility, which means the two regulations should be used at the same time. The second is the measure of the implement of disgorgement of short-swing profits which is executed by the board according to his responsibility, and executed by lawsuit. The third is the guaranty of the disgorgement of short-swing profits which is the derivative action. Moreover, the stockholders should be encouraged to do the action.In order to regulate the insiders’disgorgement, defend the principles of security markets, and protect the medium and small investors’interests, the supervising department of security and the public companies should build sound supervising system of law to make the supervision useful.

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CLC: > Political, legal > Legal > Chinese law > Financial Law > Securities and Management Act
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