New SEC law with civil penalty takes effect

Stock market manipulators and inside traders may face a heavy civil penalty now that the new Securities and Securities Exchange Act took effect.

The law, which came into force on Monday, added civil penalty as another option for stock manipulation and insider trading for the first time.

The previous law stipulates only criminal punishments for stock market offenders but it takes a long time to prove the guilt of a person "beyond reasonable doubt" in a criminal case.

Somchai Pongpattanasilp, assistant chief of the Securities and Exchange Commission (SEC), said the SEC hoped the new law would deter market misconduct and clear a backlog of cases since the civil penalty could be applied retroactively.

"The penalty is heavy -- a fine equivalent to two times the damages, the return of ill-gotten gains and a 10-year ban or suspension," he said.

The new law categorises market misconduct offences into four groups. The first involves damaging, false or distorted disclosures or information.

The second group involves use of insider information in the case of large shareholders, or executives and "front running" in the case of brokers and fund managers. Front running is the practice by market makers of dealing on advance information provided by their brokers and investment analysts, before their clients have been given the information.

The third group involves stock price manipulation, both to create misunderstanding for others and chain trading.

The fourth group aims to maintain continuity and credibility of trading. Any order that may disrupt the trade will be considered an offence.

Use of or permission to use nominee accounts shall also be considered market misconduct.

The civil penalty is an alternative to speed up enforcement. The offences that carry civil penalty are those affecting credibility and transparency of the capital market, false disclosures or information concealment, failure to perform fiduciary duty, and the use of nominees in market misconduct.

When the SEC deems it appropriate to apply civil action, it will propose the case to a committee to consider it.

Chaired by the attorney general, the five-member committee comprises the finance permanent secretary, director general of the Department of Special Investigation, governor of the Bank of Thailand and secretary general of the SEC.

If the offender agrees to pay the penalty at this stage, the case will end both for criminal and civil action.