1997
TABLE OF CONTENTS
1. Rural integration: a case study of Sultan Muhammad Bello ’s Administration
S.U. Balogun.
2. Transformation of rural settlements in Nigeria: A case study of Yagba O.
Balogun.
3. The political economy of domestic petroleum subsidies in Nigeria. A. A.
Nuhu - Koko.
4. Nigerian Civil Service reforms and political implications of administrative efficiency S. Khalid and M.A. Umar.
5. Towards achieving effectiveness and efficiency in Nigeria education system through the application of modern management techniques A. K. Yusuf.
6. Nyerere's: education for self-reliance: A Critique T. M. Sande and M. J.
Kuna
7. Contribution of Nehemiah Levitzon and John D. Hunwick to our understanding of Tarik - AI Fattash.
A. M. Saulawa
8. The position of the Sharia on eating horse meat. U. M. Labdo.
9. Insider dealing: the problematic corporate crime. I. S. Ismael.
10. Certificate of occupancy:' its concept, contents and incidents. M. J. Umar.
11. Turkubuli (Nakalin Maza Muradin Mata) A. M. Bunza.
12. Compliment.adjunct distinction and the structure

INSIDER DEALING: THE PROBLEMATIC CORPORATE CRIME by
Ismael Saka Ismael, Esq.
Department of Private and Business Law
Usmanu Danfodiyo University, Sokoto.
Introduction
Insider dealing or insider trading is in corporate parlance, term used to describe a medium of making a profit or avoiding a loss by buying or selling shares or other securities in companies as a result of the use of such unpublished price sensitive information available to the person so doing, usually because of the position such a person occupies Schmitthoff, 1982] such as that of a director of a company.
The concept of insider, dealing is aptly defined by Professor Olawoyin as "the purchase or sale of securities of a company by or on behalf of a person whose relationship with the company is such that he has superior and undisclosed information on the securities while the other party to the transaction is uninformed [Olawoyin, 1977].
For the purpose of identification, an insider is said to include true insiders. quasi-insiders, tippees and remote tippees [Henn, 1976]. This also include
Accountants, Lawyers, Surveyors, etc, who are not necessarily members of a company but in possession of inside information by virtue of their connection with the company professionally [Schmitthoff, 1973]. In Nigeria, the Law (Cap 59,
Laws of the Federation of Nigeria, 1990) has gone a step further, for avoidance of doubts to define an insider as an individual who:
(a) ... is, or at any time in the preceding 6 months has been knowingly connected with the company; or
(b) . IS connected with a company of but only if i) he is a director of that company or related company; or ii) he occupies a position as an officer (other than a director) or employee of that company or a related company or a position involving a professional or business relationship between himself (or his employer or a company of which he is a director) and the first company or a related company which in either case

may reasonably be expected to give him access to information which in relation to securities of either company, is unpublished price sensitive information, and which, it would be reasonable to expect a person in his position not to disclose except for the proper performance of his functions.
The Rationale for Outlawing Insider Dealing
A number of arguments have been advanced for outlawing insider dealing.
One of such is the existence of fiduciary relationship between insiders of companies and companies [Strong vs. Repide, 1909], hence it is argued that by virtue of this special relationship, insider dealing is unethical and harmful to the companies. This is because the insider is not expected to make secret profit, rather he is enjoined to be of utmost good faith and disclose any profit made to his company.
Insider dealing is also prohibited because it confers an unfair additional emoluments to the remuneration of directors or other insiders [William, 1962] who are in most cases "comfortably" remunerated. Another reason against insider dealing is that it is harmful to stock market because it enables manipulation of the stock market by the directors and/or other insiders who have special information [Okonkwo, 1978]. In other words, by virtue of the special information at their disposal, they can decide to prop up or bring down the value of shares in the stock market.
It is also argued that insider dealing usually leads to delays in the disclosure of material corporate information about a company's securities, and this could adversely affect the judgment and recommendations of directors most especially in matters touching on declaration of dividends and investments in other companies [Manne, 1966]. Another adverse argument is that it affects the confidence of investors in the company's securities, hence it discourages legitimate investments in corporate shares and allows the fictipn of corporate entity to obstruct instead of advancing justice. This particular argument is articulately summed up by H.L. Wilgust in the following words:
That the director may take advantage of his position to secure the profits that all have won, offends the moral sense; no shareholder

expects to be so treated by the director he selects; no director would urge his friends to select him for that reason; that the law would yet allow him to do this, does more to discourage legitimate investment in corporate shares than almost anything else, and allows the fiction of the corporate entity to obstruct instead of advance justice [Wilgust, 1910].

The Role of Courts in Curtailing Insider Dealing
Since insider dealing involves the use of privileged information by an insider of a company to either acquire from other shareholders or dispose off shares when there is like-lihood of appreciation or depreciation in the value of same as the case may be, it is certain that in an insider dealing there are two potential claimants against the insider. These are the original seller of the shares who has lost his profit and the eventual purchaser who may have had to pay an inflated price. Notwithstanding the condemnation-cum-prohibition of insider dealing by statutory law, decisions of courts in a number of cases have made.
Development of tile law in this sphere a great herculean task. Coupled with this is non-availability of a remedy (other than to account) for an aggrieved person under the Common Law. A close study of these decisions tends to produce three lines of thought.
In the first category are cases that hold that when a person sells his shares to a manager of a company which issued the shares, the parties are engaging in an "arm's-length" transaction and that"neither party owes to the other any higher standard of fairness than is applicable in the market place to an ordinary purchase or sale of chattel [Alexander, 1969]. This means that a company manager who has "inside information" bearing up'on the future prospects of the company, may seek to derive personal gain from buying or selling shares of the company without disclosing his secret knowledge to the person from whom he buys or to whom he sells. This principle simply goes'to support the director or any other insider in concealing for his own advantage inside information that he may have derived from his official position or otherwise
[Ballantine, 1946].
In Commissioners of Tippecanoe County vs. Reynolds (1873) a director w as allowed to retain the profit he derived from purchasing for $27,000 shares 1e knew were grossly undervalued at that price and which were actually then worth
$342,000. Likewise, in Percival vs. Wright (1902) where certain shareholders

wrote to the secretary of the company (Nixon's Navigation Company limited) asking if he knew anyone disposed to purchase shares.
Negotiations took place and eventually the chairman of the company and two other directors purchased the shares of ttle plaintiffs at £ 12.1 Os per share. The plaintiffs subsequently discovered that, prior to and during their own negotiations for sale, the chairman and the board had been approached by a third party with a view to the purchase of the entire undertaking of the company at prices which represented considerably over £12.10s per share. In an action by the plaintiffs to set aside the sale on the ground that the purchasers, being directors, ought to have informed their vendor shareholders of certain pending negotiations for the sale of the company's undertaking which was valued higher than £ 12.1 Os per share. It was held by the court that the directors of a company are not trustees for individual shareholders, and may purchase their shares without disclosing pending negotiations for the sale of the company's undertaking. Also, in Geller VB. Transamerica Corporation (1943), it was held that a majority shareholder owed no duty of disclosure when. purchasing the shares of a minority shareholder. It is submitted that the decisions in these cases above do not only deny relief to the injured or aggrieved person, but also posted on the non-existence of a fiduciary relationship between director and shareholder; a fortiori, any other third party [Olawoyin, 1977].
The second line of thought consists of decisions that hold the company manager or director to a higher standard of fairness and characterize him as owing the obligation of a trustee or "fiduciary" not only to the company but also to its shareholders when purchasing their shares [Alexander, 1969]. This position is a great departure from the earlier one and goes to support the principle that a director has the obligation of a "fiduciary" or "trustee" toward a shareholder while buying his shares. This is a bold step at suppressing occurrence of insider dealing. In Allen VB. Hyatt (1914), the directors of a company (Lakeside Canning Company limit~d) arranged for the sale of the undertaking to a third party. As they held less than one-third of the shares in

the company, they negotiated options with the remaining shareholders to allow them to purchase their shares when the sale went through. The price fixed under the option contract amounted to some $22,000 while the company was sold at some $42,000 and in addition the directors were given a substantial holding in the new company. A group of sh2ieholders who had granted options sued for a declaration that the directors were trustees for the shareholders of the substantial profit they had made. The court held that "the directors must here be taken to have held themselves out to the individual shareholders as acting for them on the same footing as they were acting for the compcmy itself, that was as agent" and would therefore be liable to them if such Shd~holders are prejudiced by the transaction as in this case.
Also, in Hotchkiss vs. Fischer (1934), the plaintiff sought the advice of the defendant, a director of the corporation, with regard to her shares which she wanted to sell if no dividend was going to be declared at the next board meeting, The director declined to express an opinion as to the value of her shares and said truthfully that he was not in a position to know whether a dividend would be declared until he conferred with the other directors. The shareholder was also given the company's latest financial statement.
Subsequently, the director purchased tile shares for $1.2 each which was above the par value. There was evidence that the book value was about
$3.80 and that the market price had recently ranged from $1 to $1.5. Shortly after the transaction the directors declared a dividend of $1 a share.
Thereupon the plaintiff brought this action for damages. The court held in favour of the plaintiff not only to supply her with the financial statements but also to help her to understand them. The court further held that "without being analyzed and interpreted the statement would convey little information respecting financial condition to a shareholder who did not acknowledge competency".
The third, but not the least, position is the somewhat intermediate position found in the cases that have come to be known as the "special facts" or "special circumstances" doctrine [Alexander, 1969]. These are decisions

that do not purport to reject the principle that normally a company manager and shareholder are engaged in an "arm's-length" transaction when the former buys the latter's shares, but that cushion the potentia1 unfairness of this rule by subjecting the manager to a duty to disclose significant information that he acquired under "special" facts or circumstances. This is the reasoning in
Strong vs. Repide (1909). The plaintiff in this case sought to recover from the defendant 800 shares in a Philippine corporation that she had sold to him.
Defendant owned more than two-thirds of the corporation's outstanding shares and was its chief executive. For several years he had been conducting negotiations on behalf of the corporation with the United States government for the sale of certain corporate lands to the United States. While these negotiations were approaching a climax, the defendant in mid-September
1903, employed one Kauffman to buy the plaintiffs shares without disclosing the identity of his principal and without disclosing the state of negotiation. An agreement for the sale of the lands, particularly favourable to defendant's company, was executed on December 21, 1903.
The court, in arriving at a decision in favour of the plaintiff, was influenced by Mr. Justice Peckham's opinion that

The whole transaction gives conclusive evidence of the overwhelming influence defendant has in the course of the negotiations as owner of a majority of the stock and as agent for the other owners, and it is clear that the final consummation was in his hands at all times. If under all these facts he purchased the stock from the Plaintiff, the law would indeed be impotent if the sale could not be set aside or the Defendant cast in damages for his fraud [Alexander, 1969].
With this decision, it is doubtful whether the lenient or "arm's-length" rule is now in fact the "majority" rule hence the "special facts" exception has been applied extensively; and the modern decisions of courts facing the problem for the first time have almost uniformly held that a "fiduciary" standard is applicable to a company manager or director in share-purchasing transactions.
The Real Problem of Insider Dealing It is no exaggeration that insider dealing is a minefield of conflict of interests between the insider's personal interest and that of the company. There is no doubt also that judicial efforts to curtail it to the barest minimum have proved inadequate. As a matter of fact and necessity, statutory rules have been resorted to. In Nigeria, considerable steps, though not adequate, have been taken in the Companies and Allied Matters Act 1990, hereinafter referred to as CAMA. The whole of chapter 5 of part xvii of CAMA
[Cap 59, Laws of the Federation of Nigeria. 199O} is' devoted to insider dealing.
This is commendable as it is a step further from the 1968 Companies Act which merely provided for maintenance of a register of direct9rs with a duty of disclosure of directors holding in sections 188, 189 and 190. The major achievements of CAMA in the field of insider dealing are pro~sions for civil remedy (S.620(a) & (b», criminal sanction (5.621), and the expansion of definition of insider (5.624(1». Section 62° (a) provides compensation for an aggrieved person while section 620(b) makes the insider accountable to the

company for the benefit or advantage derived from the company. Section 621 imposes 3 years imprisonment or a fine of "'5,000.00 or both on conviction for an offence of insider dealing.
The highlighted provisions (especially 8.620 and 8.621) of CAMA dealing with insider dealing are highly commendable. It is however, with due respect, observed that criminal prosecutions (as provided in 8.621) are not altogether satisfactory especially in Nigeria, because detection of insider dealing is likely to be fortuitous as it happened in the sale of about 23 per cent of the shares in
Savannah Bank (Nig.) Plc. to some Lebanese investors, which up till this moment, the identity of the actors is yet unknown [Financial Guardian, 1993].
Scarcity of prosecutorial resources is an added factor which makes random prosecution likely as in the sale and subsequent purchase of 60 per cent equity shares of Texaco Nigeria Plc. to another company (TNP Holdings (Nig.) Ltd.), and the inability of Securities and Exchange Commission (See) to identify the people behind the purchase goes to buttress the point of scarcity of prosecutorial resources [Financial Guardian, 1993]. It is further submitted that even where it is achieved, random prosecution neither deters nor makes for faith in the efficacy of a criminal justice system.
At this juncture, it is worth noting that since in insider dealing cases, the class of defendants is likely to be affluent perhaps of prominence, and prone to mount a capable defence, the occasional criminal prosecution that does take place may be noisy. Through media attention, the prosecution may lead to or reinforce public belief that insider dealing is widespread [8chmitthoff, 1982].
Certainly, criminal prosecution may impugn the very confidence insider dealing prohibitions are meant to bulwark.
On the other hand, private actions for damages as provided in 8.620(a) of
CAMA are neither the panacea to insider dealing. Civil actions must dispense with any requirement of privity as relation of privity would produce fortuitous plaintiff. However, fortuitous plaintiffs and windfall recoveries are not condemnable if the regulation's object is deterrence rather than compensation

[Schmitthoff, 1982].
Conclusion
Since insider dealing really damages the market for shares and not anyone person, then a better remedy perhaps does not lie in civil actions or criminal prosecution but rather, in the opinion of Douglas M. Benson which this author subscribes to, the insiders should be "made answerable to the company or other owner of the information as the entity whom they have most directly harmed" [8chmitthoff, 1982]. If this statement is anything to go by, then S.620(b) of CAMA should be our area of emphasis as a relationship of trust and loyalty with a company and severe penalties for breach of it are concrete, but they are much more likely to deter insiders than are the vaguer notions of loyalty to the market place.
In this wise, shareholders could bring derivative action for violation;) if rules against insider dealing and there could be no much problem with a corporate recovery for insider dealing. Even though no case has so held, but strong precedent does exist in the case of Phipps vs. Boardman (1967) where a trust which held as its sole asset a company's shares has recovered from a solicitor who exploited information to purchase shares for himself.

References.
Books:
Alexander, H.F. et.a/ Cases and Materials on Corporations, New York:
Foundation Press, 1969, p.683.
Ballantine on Corporations, Baltimore: The John Hopkins Press, 1946, p.122.
Financial Guardian, Monday, November 1, 1993, at p.1 O.
Henn, N., Corporations, Baltimore: The John Hopkins Press, 1976. p.470.
Manne, H.G., Insider Trading in the Stock Market, New York: Free Press, 1966, p.138.
Olawoyin, G., Status and Duties of Company Directors, IIe-lfe: The University
Press, 1977. p.144. Okonkwo, C.O., "A Critical Appraisal of Insider
Trading Under the LaW', p.1.
Schmitthoff, C.M.(ed.), Journal of Business Law. 1973, p.118.
(ed.), Journal of Business Law, 1982, p.413.
William, C., "Corporate Standards and Legal Rules", (1962) 50
Cal.L.R.408 at 415.
Wilgust, H.L., "Purchase of Shares of Corporation by a Director from a
Shareholder", (1910) 8 Mich.L.R.267 at 297.
Cases:
Allen vs. Hyatt (1914),30 T.L.R.444.
Commissioners of Tippecanoe County vs. Reynolds (1873), 44Ind.509.
Geller vs. Transamerica Corporation (1943), D.DeI.53F. Supp.625.
Hotchkiss vs. Fischer (1934). 136 Kan.530.
Percival vs. Wright (1902, 2 Ch.421.
Phipps vs. Boardman (1967), 2 A.C.46.
Strong vs. Repide (1909), 213 US.419.
Statutes:
See Ss.614-621 Cap 59, Laws of the Federation of Nigeria, 1990.