Financial Regulatory Forum

Saudi court gives first jail term for stock market violation

By Reuters Staff
August 18, 2009

By Souhail Karam
RIYADH, Aug 18 (Reuters) – A Saudi financial court has taken the unprecedented step of slapping a jail sentence on a violator of stock market rules, after the chairman of Bishah Agricultural Development Co was found guilty of insider trading.

According to a statement published on the Capital Market Authority’s (CMA) website, the Committee for the Resolution of Securities Disputes (CRSD) has issued a final verdict against Najm-Eddine Ahmad Najm-Eddine Dhafer, sentencing him to three months in jail.

The CRSD’s ruling found Dhafer “guilty of insider trading in Bishah shares based on him being the Chairman of the company’s board”, CMA said.

Attempts by Reuters to contact Dhafer at his home were unsuccessful. It was unclear whether he was in custody.

The ruling was issued on June 2 and took effect on Aug. 17, the CMA said. According to the CMA, a CRSD ruling may be appealed within 30 days of the notification date. It was not immediately clear if Dhafer would be allowed to appeal.

Market watchers said the decision was a first. “Never before has someone been jailed for violating stock market regulations in Saudi Arabia,” said Abdulhamid Al-Amri, a member of the Saudi Economic Association, a semi-official think-tank.

“This is unprecedented, but very positive,” said Ibrahim al-Alwan, deputy chief executive of KSB Capital, a local investment bank.

Dhafer was also fined 100,000 riyals ($26,667), banned from working for any listed firm for five years and was ordered to pay the CMA the 52,690 riyals the watchdog said he made in profits from trading in Bishah’s shares.

Bishah was involved in the processing of dates and in the cereal seeds business before CMA suspended its stock from trading in January 2007 after it posted a 2006 net loss of 38 million riyals, exceeding the regulatory 75 percent of its paid-up capital.

The measure reduced Bishah’s 400 million riyals market value to nil and left some 10,000 shareholders in limbo, according to traders familiar with the company.

THREE CASES IN TWO MONTHS
Like others in the Gulf region, the Saudi stock exchange has been dogged by allegations of insider trading and manipulation of stock prices, and the CMA has slapped hefty fines on many investors and executives found guilty of manipulation.

The decision against Dhafer is the third in less than two months.

Analysts say the CMA is keen to improve the reputation of the Arab world’s largest bourse, which is gradually opening up to direct foreign ownership amid tough competition from bourses in the Gulf Arab region.

But first, adherence to corporate governance regulations must be made compulsory for listed firms in order to achieve greater progress in boosting transparency in the bourse, they say.

In remarks published by Okaz newspaper on March 28, the CMA’s head Abdul-Rahman al-Tuwaijri said his department was probing 92 cases of suspected violations including price manipulation and improper disclosure.

They are included among 151 cases registered last year which involve suspected price manipulation, misleading, and irregular disclosures and insider trading, he said.

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •