Insider trading can be a risky game


Use or disclosure of confidential securities-related information is a crime punishable by prison or millions of zlotys in fines.

In June 2010, a Warsaw court acquitted three businessmen of charges of use and disclosure of confidential information. The court found that the evidence was insufficient to convict the men, but the Polish Financial Supervision Authority said it would appeal. It was alleged that the men relied on inside information to buy PLN 610,000 worth of shares prior to release of an official communiqué. After the announcement, the stock price rose nearly 410% in the course of just a few days.

Confidential information is defined under the Act on Trading in Financial Instruments to mean unpublished information that may have an effect on the price of a company’s shares, and could include, for example, an unpublished announcement of a planned merger. A person with access to such information who buys shares before the announcement and then resells them, profiting on the difference in the share price, may be guilty of a crime. The act distinguishes two different crimes: disclosure of confidential information, which is subject to a fine of up to PLN 2 million and/or up to 3 years in prison, and use of confidential information, for which the sanction is a fine of up to PLN 5 million and/or 3 months to 5 years in prison.

According to media reports, the Polish Financial Supervision Authority examines numerous suspicious trades every year. Only a small percentage result in notification of the prosecution service and eventually a conviction. One of the reasons it is difficult to prove crimes of this type is that there may be a large group of people with access to sensitive information. One of the methods for identifying suspects is to study their trading patterns, but this may not be enough to show that they committed a crime. Such trades are often camouflaged, for example by buying shares through a chain of intermediaries. Sometimes it is practically impossible to identify the culprits.