Title: Danish Crackdown on Insider Trading and Market Manipulation: Tougher Penalties and Increased Enforcement

Background

Brussels, 20 October 2021 - The EU’s recent proposal for a Directive on criminal sanctions for insider dealing and market manipulation has amplified the focus on member states’ approaches to combating these illicit activities. Denmark, renowned for its stringent stance on securities trading violations, has grabbed the limelight.

Previous Legislative Framework

Before the EU’s proposed Directive, Denmark had already been treating breaches of the securities trading rules, as outlined in the Securities Trading Act (the Act), as criminal offenses. However, in recent years, the incidence of criminal cases related to such infringements has witnessed a substantial increase. This trend can be ascribed to heightened regulatory emphasis on market integrity, rather than alterations in investor trading patterns.

Danish Enforcement and Penalties

The Danish Financial Supervisory Authority (FSA) administers compliance with the Act, while the State Prosecutor for Serious Economic Crime (SEC) undertakes the prosecution. Those found to have transgressed sections 35(1), 36, and 39(1) of the Act - relating to the unauthorized disclosure of inside information, insider trading, and market manipulation, respectively - are subject to fines or imprisonment for up to one year and six months. For particularly flagrant or repeated offenses, the sentence can escalate to four years.

Announced Legislative Changes

In line with the EU’s proposed Directive, the Danish government has pledged to augment the maximum penalty for insider trading and price manipulation from four to six years. Additionally, the proposal intends to enable the regulators to use telephone interception during investigations.

Supreme Court Perspective

The Danish Supreme Court characterizes intentional violations of these prohibitions as typically warranting unconditional imprisonment, with penalties usually ranging from three to six months. However, the Act criminalizes other securities trading regulation breaches beyond these core offenses. Violations of disclosure rules may result in fines, with the FSA having the discretion to close cases with warnings or administrative fines if the offender acknowledges the wrongdoing.

Fines and Increased Enforcement

In recent times, the FSA and SEC have shown a propensity towards imposing higher fines. Standard fines for first-time infringements stand between DKK 10,000 and DKK 20,000. More transgressive offenses, such as listed companies’ obligations to disclose inside information or unauthorized disclosure to third parties, attract fines reaching DKK 100,000, with anticipation of continuous increases in the approaching years.

Companies under Investigation

For firms under examination, exposure often ensues before a verdict, as the FSA typically unveils its decision to remit cases to the SEC for further prosecution - except in cases where such revelations could derail ongoing investigations or significantly damage reputations.

Conclusion

Denmark’s crackdown on insider trading and market manipulation comprises escalating levels of fines and heightened enforcement efforts, leaving violators confronted with formidable sanctions and heightened regulatory oversight.