Legal Aspects of Finance Slide Set 7 Insider Case - Finnish Supreme Court (KKO 2002:110) Matti Rudanko

Insider Case KKO 2006:110 In the group management and board of Insurance Company Sampo Plc, a member of which L, the CEO of the group, was, uniting the life insurance activities of Sampo and Pohjola Insurance Company Plc and acquiring shares of Pohjola were considered in the first half of the year 1999. L has signed on behalf of Sampo an offer for negotiations with Mutual Life Insurance Company Suomi May 24, 1999 concerning the uniting of Suomi with Mutual Insurance Company Kaleva and purchasing the shares of Pohjola held by Suomi. L had bought shares of Pohjola to his minor daughter May 28, 1999, and to a company under his control June 7, 1999. Legal Aspects of Finance 7

The Figure of the Case SAMPO: CEO L POHJOLA Purchase of Pohjola’s Shares from Suomi shareholdings SUOMI KALEVA uniting Legal Aspects of Finance 7

Cont.: information of a precise nature The requirement of precise nature of inside information is fulfilled whenever there is a real possibility of the circumstances or events in question coming true. The information should also be accurate enough to assess their possible effect on the prices of financial instruments. By leaving the negotiation offer May 24, 1999 Sampo has proceeded on a concrete way in its plan by opening discussions with the seller. So, the information has been of a precise nature. Legal Aspects of Finance 7

Cont.: Information not made public To assess whether information is made public or otherwise available in the market attention should be paid, i.a., to how much information made public or otherwise available in the market corresponds to the information claimed to be of inside nature. All investors should have equal opportunities to make use of information on securities and their issuers. Legal Aspects of Finance 7

Information not made public, cont. In a stock exchange release issued by Sampo May 25, 1999 the shares of Pohjola held by Suomi are not mentioned. In an interview published May 26, 1999, the MD of Kaleva told that especially Sampo was interested in the shares of Pohjola held by Suomi if they were offered to be bought. The interview did not contain any announcement that the negotiation offer made would concern also buying shares of Pohjola held by Suomi. The market did not react on the information given in the interview. Legal Aspects of Finance 7

Information not made public, cont. The information on the market on cooperation offers made to Suomi and the willingness of Suomi to sell the shares differed with respect to an investment decision from information stating that Sampo aimed at acquiring the shares of Pohjola held by Suomi explicitly as a part of structural arrangement alternatives drafted by Sampo and that the company together with Kaleva had explicitly expressed to Suomi its willingness to acquire the shares. Legal Aspects of Finance 7

Cont.: ”likely to have a significant effect on the value or price” (Penal Code ch. 51, sect. 6) The expression “value or price” means factually the same as “value” in SMA but now it is emphasized that even a short-time impact on prices is sufficient. The information should be, with respect to general assessment criteria applied in the securities market, such as to have usually an impact on the value or price of the security. A factual (realized) impact is not required. The materiality of the impact should be compared with typical changes in the market, and not just the relative change in the value or price that has possibly occurred should be assessed. Often even a sudden change of some per cent is material. Legal Aspects of Finance 7

Cont.: ”likely to have a significant effect on the value or price” Sampo and Pohjola have been big companies on the branch. The shares of Pohjola in question have represented a 40 per cent share of the voting rights of the whole share capital of the company, what grants their holder a considerable influence on decision of future of the whole company, e.g. with respect to company restructurings. Trades of this kind are likely to have a significant effect on the value the share in question, on the mere basis of the possible premium, or the price exceeding the stock exchange rate, paid for them. Legal Aspects of Finance 7

Cont.: “to gain material benefit” L made the first transaction in shares May 28, 1999, or only four days after the negotiation offer made to Suomi. The second transaction was made June 7 immediately after he was given the mandate to continue negotiations with Suomi on the basis of the negotiation offer. L had chosen as an object of investment shares on the factors affecting the value of which he had inside information. It is well-founded to consider that this information has increased the attractiveness of those shares as investment targets because it would have the said impact on their value. It does not matter in this respect whether L would even without this information have invested in shares of Pohjola. So L has made use of inside information to gain economic benefit. Legal Aspects of Finance 7

Cont.: “wilfully or through gross negligence” When acquiring the shares of Pohjola L had paid no attention to whether confidential information relating to internal plans and measures of the group had been inside information. Taking into account L’s position as the CEO of the group and his legal education he would have good reasons, on the basis of his experience and education, to suspect that the information possessed by him in that situation, the material contents of which was not made public, could be inside information. This conclusion is supported also by the fact that the private share transactions by L were carried out just when the plans concerning the structural arrangements between Sampo and Pohjola were known to be in a critical stage. The value of those transactions, both being over 25 000 €, was not inconsiderable. With respect to this and the position of L as well as the importance of the plans concerning the structural arrangements for the banking and insurance sector, L, when making these private share transactions, had a special duty to make carefully sure that these transactions would not make him guilty of abuse of inside information. L has made himself guilty of abuse of inside information through gross negligence. Legal Aspects of Finance 7