Federal Court makes three significant rulings in civil action for disgorgement of profits from insider trading

27 October 2025

In Sreesanthan a/l Eliathamby v Suruhanjaya Sekuriti Malaysia [2025] 7 AMR 503, the Federal Court made three significant rulings in relation to civil actions by Suruhanjaya Sekuriti Malaysia (Securities Commission Malaysia) (“SC”) for disgorgement of profits from insider trading in Malaysia.

Facts

The appellant was a corporate lawyer. He was engaged by an investment bank to advise on the proposed privatisation (“privatisation”) of a company listed on Bursa Malaysia (“listco”) by its main shareholder (“main shareholder”). During the engagement, the appellant acquired 600,000 shares in listco in two tranches between June and July 2006. On 19 August 2006, a newspaper report revealed the privatisation plan. On 23 August 2006, the board of directors of the listco announced its receipt of the main shareholder’s letter of intent to privatise the listco at an offer price of RM3.50 per share, as compared to the listed price of RM2.54 before the suspension of trading of the listco’s shares.

When trading resumed, the shares opened at RM3.22. On 14 and 15 September 2006, the appellant disposed of all 600,000 shares, and as a result made a profit.

The respondent, the SC, commenced a civil action against the appellant under section 89E(2)(a) read with section 90A of the Securities Industry Act 1983 (“SIA”), seeking disgorgement of profits made by the appellant.

Decision of the High Court

The High Court allowed the SC’s claim and made the following findings:

the appellant had in his possession information that the main shareholder proposed to privatise the listco;
the information relating to the privatisation that was in the appellant’s possession was not generally available at the time when he acquired the 600,000 shares in the listco;
to establish mens rea for the purposes of the insider trading prohibition, it has to be proven that the appellant knew or ought reasonably to know that the information in his possession was not generally available;
the SC was not required to prove the appellant’s intention to use the inside information, as intent to use does not form part of any element of the insider trading prohibition;
on the facts, it was sufficiently established that the appellant knew or ought to reasonably know that the information in his possession was not generally available; and
the information relating to the privatisation was material information within the meaning of section 89E(1)(a) of the SIA because:

there was a sharp increase in the price of the listco’s shares following the publication of the information on the privatisation in the newspaper report and the announcement by the listco on 23 August 2006;
the fact that the main shareholder was contemplating a privatisation of the listco was information that a reasonable person would expect to have a material effect on the price of the listco’s shares because it was reasonable to deduce that the offer price would be at a premium to the prevailing market price;
it was not necessary for the SC to prove that the appellant knew, at the time he traded in the listco’s shares, how the privatisation was to be affected, or what the offer price for the shares was to be; and
the proceedings commenced by the SC did not amount to “proceedings for an offence” within the meaning of Article 145(3) of the Federal Constitution ("FC"), and thus need not have been commenced by the Attorney General (“AG”). As a corollary, section 90 of the SIA is not inconsistent with Article 145(3) of the FC and therefore does not contravene Article 4 of the FC.

The High Court then made the following principal orders:

a declaration that the appellant had breached section 89E(2)(a) of the SIA;
pursuant to section 90A(5) of the SIA, the appellant pays to the SC the sum of RM1,989,402 being an amount equal to three times the amount of the difference between the price at which the appellant acquired the listco’s shares and the price at which they would have been acquired at the time of the acquisition, if the information on the privatisation had been generally available; and
the appellant be barred from being a director of any publicly listed company for 10 years pursuant to section 100(1)(a) of the SIA with effect from 19 November 2020.

Decision of the Court of Appeal

The Court of Appeal unanimously dismissed the appellant's appeal broadly on the following grounds:

the information on the privatisation, i.e. the inside information, was known to the appellant from his direct involvement in the corporate exercise;
the appellant knew as a matter of fact that this inside information was not generally available as it was information disclosed on a strictly confidential basis;
the High Court did not err or fail to appreciate the evidence in concluding that the not generally available information was such that a reasonable person would expect it to have a material effect on the price or the value of securities of the listco;
the High Court was right in concluding that the defendant was in possession of the not generally available price-sensitive inside information and that he purchased the impugned shares before the information of the privatisation was made public via the newspaper report or the formal announcement by the listco. As such, the contravention of section 89E(2) of the SIA had been proved for the purpose of a civil action for disgorgement of the gain under section 90(1) of the SIA, and for the remedies under section 90A(5) of the SIA; and
the civil action commenced by the SC was perfectly in order and not null and void. There was nothing unconstitutional about the civil action and remedies sought.

Decision of the Federal Court

Leave was granted to the appellant to appeal to the Federal Court on five questions of law. These questions are summarised by the Federal Court as follows:

First issue: Whether intent to use the alleged inside information forms the mens rea element to ground liability pursuant to section 89E of the SIA, or whether it is a matter of strict liability that requires proof of mere possession of inside information, or whether proof only that the appellant knew that the information was not generally available information, suffices (“breach issue”). The determination of the first issue would answer leave question No. 1.

Second issue: Whether the relevant time to assess the materiality of the alleged inside information is at the time the impugned acquisition occurs, or whether a court may consider the facts and circumstances occurring after the time of the impugned acquisition (“materiality issue”). The determination of the second issue would answer leave question No. 2.

Third issue: Whether the power given solely to the AG to institute “any proceedings for an offence” under Article 145(3) of the FC extends to a civil action brought under sections 90 and 90A(5) of the SIA (“constitutional issue”). The determination of the third issue would answer leave questions No. 3, 4 and 5.

The Federal Court’s decision on the breach issue and the materiality issue were delivered by Datuk Vazeer Alam Mydin Meera FCJ and on the constitutional issue was delivered by Tan Sri Hasnah Mohammed Hashim CJ (Malaya).

The first issue - breach

Section 89E of the SIA sets out the prohibition against insider trading and reads:

“89E. Prohibited conduct of person in possession of inside information

(1)

A person is an "insider" if that person –

(a)	possesses information that is not generally available which on becoming generally available a reasonable person would expect it to have a material effect on the price or the value of securities; and
(b)	knows or ought reasonably to know that the information is not generally available.

(2)	An insider shall not, whether as principal or agent, in respect of any securities to which information in subsection (1) relates –

(a)	acquire or dispose of, or enter into an agreement for or with a view to the acquisition or disposal of such securities; o
(b)	procure, directly or indirectly, an acquisition or disposal of, or the entering into an agreement for or with a view to the acquisition or disposal of such securitie

(3) – (5)

…”

In addition to being a criminal offence, Justice Vazeer FCJ added that a transgression of section 89E(2) can also give rise to civil liability under section 90(1) of the SIA:

“90. Civil remedies

(1)

Where it appears to the Commission that any person has contravened section 84, 85, 86, 87, 87A, 88 or 89E, the Commission may institute civil proceedings in the Court against that person, whether or not that person has been charged with an offence in respect of the contravention, or whether or not a contravention has been proved in a prosecution.

(2)

…”

The Federal Court agreed with the pronouncements of the High Court and the Court of Appeal that section 89E of the SIA:

does not impose strict liability;
requires a mental element (mens rea) in that the insider “knows or ought reasonably to know” that the information is not generally available as stated in section 89E(1)(b); and
section 89E(1) does not require proof of “intention to use” or “improper use” of the information.

The Federal Court rejected the appellant’s contention that section 89E(1) requires proof of “intention to use”. According to Justice Vazeer FCJ, while this may have been the case before section 89 was amended in 1998, the amendments to the SIA that came into effect in 2000 had removed the element of improper use of information and as section 89E presently stands, criminal or civil liability arises when the following elements are established:

the offending insider must:

be in possession of not generally available price-sensitive information; and
have, during that material period, made an acquisition or disposal of shares in the company, the subject of the information;

it is not one of strict liability, in that it requires the mental element of knowledge, i.e. that the insider “knows or ought reasonably to know” that the information is not generally available to the public; and
it does not require proof of “intention to use” or “improper use” of the information.

His Lordship then answered leave question No. 1 in the negative and stated that section 89E does not create a strict liability offence. Instead, section 89E(1)(b) requires that an accused or defendant “knows or ought reasonably to know” that the information in question was not generally available. This knowledge of the accused or defendant constitutes the mens rea element of the insider trading prohibition and courts would have to determine this objectively based on the available evidence.

The second issue – materiality

According to Justice Vazeer FCJ, this issue deals with the relevant point in time at which a court is required to assess whether information in the possession of the insider is material for the purposes of determining any contravention of section 89E of the SIA.

The Judge referred to the definition of materiality in section 89B of the SIA which reads:

“89B. Material effect on price or value of securities

For the purposes of this Division, an information that on becoming generally available would or would tend to have a material effect on the price or value of securities, refers to such information which would or would tend to, on becoming generally available, influence reasonable persons who invest in securities in deciding whether or not to acquire or dispose of such securities, or enter into an agreement with a view to acquire or dispose of such securities.”

Relying on Sharbern Holdings v Vancouver Airport Centre Ltd [2011] SCJ No. 23, a decision of the Supreme Court of Canada, which was applied by the Malaysian High Court in Suruhanjaya Sekuriti Malaysia v Chan Soon Huat [2017] AMEJ 1783 and Securities Commission Malaysia v Toh Kai Fatt [2023] 10 MLJ 670, the Federal Court rejected the appellant’s contention that materiality should be assessed at the point in time when he acquired the two tranches of the listco’s shares. According to His Lordship, on the issue of materiality, the court may consider facts and circumstances at the time and after the time of any impugned acquisition. His Lordship added that:

“Materiality is a question of mixed law and fact, which is to be determined objectively from a reasonable investor's perspective. And in so doing, regard must be had to the statutory definition of materiality in s89B of the SIA, and the facts and circumstances prevailing at the time when the information was conveyed to or obtained by the insider. This would include the effect that such information would have on becoming generally available at the time the inside information was communicated and whether it would have generally affected investor behaviour in respect of the shares or securities in question.”

Thus in answer to leave question no. 2, the Federal Court held that in determining the materiality of information in the possession of an insider, as defined in section 89B of the SIA, the court shall not merely confine itself to the facts and circumstances occurring at the time of any impugned acquisition or trade of the securities, but also take into consideration the facts and circumstances after the time of the said impugned acquisition or trade.

The third issue – constitutionality

The appellant had contended that the consent of the AG is necessary for the civil suit brought by the SC under section 90A of the SIA, and absent that, the whole proceedings are unconstitutional, null and void.

The relevant provision of the FC is Article 145(3) which reads:

“The Attorney General shall have power, exercisable at his discretion, to institute, conduct or discontinue any proceedings for an offence, other than proceedings before a Syariah court, a native court or a court-martial.”

After considering the comments by Gopal Sri Ram J (as he then was) in Repco Holdings Bhd v PP [1997] 3 MLJ 681 and Eusoffe Abdoolcader J (as he then was) in Public Prosecutor v Datuk Harun bin Hj Idris & Ors [1976] 2 MLJ 116 on Article 145(3) of the FC in light of sections 3, 376 and 377 of the Criminal Procedure Code¹ (“CPC”), Her Ladyship, Tan Sri Hasnah CJ (Malaya), opined that Article 145(3) has conferred the sole power to institute, conduct and discontinue criminal proceedings to the AG. The learned Chief Judge added that, “the provisions of the CPC should be read and referred to within its proper context. The definition of “offence” in the CPC does not have the effect of expanding “proceedings for an offence” in Article 145(3) to include non-criminal matters. Neither does s3 of the CPC intend the creation of the novel concept of “civil offences” or “civil prosecutions.”

The Federal Court then held that the appellant’s contention that the term “proceedings for an offence” in Article 145 of the FC includes civil proceedings under section 90A(5) of the SIA is untenable for the following reasons:

“offence” in the FC consistently refers to criminal offences for which a person is charged, convicted or acquitted, and sentenced;
“any proceedings for an offence” in the context of Article 145(3) of the FC has been consistently interpreted by the courts to refer to criminal prosecution and proceedings for criminal offences;
the appellant’s interpretation of “proceedings for an offence”, if accepted, would have far-reaching effect on civil actions and other statutory regimes of similar nature;
unlike a criminal offence for which there is no time bar, the civil claim under section 90 of the SIA has a statutory time bar of 12 years from the date on which the cause of action accrued as stated in section 90A(5) of the SIA;
the non-payment of any judgment sums ordered to be recovered or penalty imposed by the court for a claim under section 90A(5) would be a civil debt, which needs to be enforced in the usual ways a judgment for monies owing is enforced;
unlike a fine or penalty imposed in a criminal proceeding, the manner in which the amount recovered by the SC in an action pursuant to section 90A(5) or 90A(6) is dealt with in a different manner as stipulated in sections 90A(7), 90A(8) and 90A(9) of the SIA.²

Hence, the apex court answered the questions in the negative in that the power given solely to the AG to institute “any proceedings for an offence” under Article 145(3) of the FC does not extend to a civil action brought under section 90A(5) of the SIA.

For the reasons stated above, the Federal Court dismissed the appeal and affirmed the judgments of the Court of Appeal and the High Court.

Comments

This decision of the Federal Court is significant in relation to civil actions by the SC for disgorgement of profits from insider trading in Malaysia for the following reasons:

First, it is now firmly established that section 90 of the SIA is not unconstitutional and the SC has the power to commence civil actions for disgorgement of insider trading profits under the said provision.

Second, insider trading is not a strict liability offence - section 89E(1)(b) of the SIA requires mens rea to be proved in that an accused or defendant “knows or ought reasonably to know” that the information in question was not generally available.

Third, in determining the materiality of information in the possession of an insider, the court is not to confine itself to the facts and circumstances occurring at the time of any impugned acquisition or trade of the securities, but must take into consideration the facts and circumstances after the time of the said impugned acquisition or trade.

Fourth, and most significantly, the Federal Court’s reasoning in this case will apply with equal force under the Capital Markets and Services Act 2007 which replaced the SIA, as sections 188, 200 and 185 of the successor legislation are either in pari materia or substantially in pari materia with sections 89E, 90 and 89B of the SIA respectively.

Case Note by Phua Pao Yii (Partner) and Chong Cai Yi (Associate) of the Corporate Practice of Skrine.

¹ Section 3 of the CPC provides, inter alia, that all offences under the Penal Code and under any other written law shall be inquired into and tried according to the provisions of the CPC. Section 377 of the CPC provides, inter alia, that every criminal prosecution before any Court and every inquiry before a Magistrate shall be conducted by the Public Prosecutor, a Deputy Public Prosecutor or a person authorised by the Public Prosecutor etc. Section 376 of the CPC provides that the AG shall be the Public Prosecutor and shall have the control and direction of all criminal prosecutions and proceedings under the CPC.

² Fines and penalties for criminal offences are considered Government revenue. Section 90A of the SIA provides that any amount recovered in a civil action are applied in the following order: (1) to reimburse the SC’s costs of investigation and proceedings (section 90A(7)(a)); (2) to compensate the sellers or sellers who disposed or acquired the securities, as the case may be, when the information was not generally available from the time of the first contravention of section 89E(2) until the information became generally available (sections 90A(7)(b)(i) and 90A(7)(b)(ii)); and if the SC deems compensation under section 90A(7)(b) is impracticable, the amount that remains undistributed under that provision is paid to the compensation fund maintained under Part VIII of the SIA, or retained by the SC to defray the costs of regulating market trading, as determined by the SC, with the approval of the Minister of Finance (sections 90A(8) and 90A(9)).

This article/alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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Federal Court makes three significant rulings in civil action for disgorgement of profits from insider trading