Title: The Questor Scandal: Hungary’s Insider Trading Saga and New Regulations

Insider trading, the act of using non-public, material information for financial gain, continues to pose a challenge to market integrity, equity, and investor protection, not just in Hungary but globally. Hungary, an EU member since 2004, has had regulations against insider trading since 1990; however, the number of cases brought to court has been minimal.

The Questor Scandal

One of the most prominent insider trading cases in Hungary is the Questor scandal, which unfolded in the late 1990s. The Hungarian Court of First Instance handed down a ruling on this case in 1994.

Behind the Scandal

The scandal involved two defendants: one, the general manager of a named company (N. Rt.), and the other, an employee of a local brokerage firm. The general manager obtained inside information about N. Rt.’s planned license to place its stocks in the market. He reported the information to the board only two months after the stock transactions and bought stocks from the Foreign Stock Exchange prior to the official announcement.

The brokerage firm received instructions to buy a large quantity of N. Rt. stocks within a specific price range. Consequently, the stocks’ price increased significantly, from 600 Ft to 2400 Ft, generating a profit of 17 million Ft for N. Rt.

The defendants used the profits to perform a share capital increase, subsequently ceasing their debt of 300 million Ft to B. Bank.

Legal Consequences

The defendants were charged with breach of bank secret under Section 300/A of the Hungarian Criminal Code. The Court of First Instance sentenced the first defendant to ten months in prison and a fine of 100,000 Ft, while the second defendant received a one-year and two-month prison sentence and a fine of 200,000 Ft.

New Information

During the trial, new information emerged, revealing that N. Rt. was facing financial difficulties during the early 1990s. Despite the company’s attempts to launch a consolidation program and publishing its balances and economic data, market conditions did not respond positively.

Role of the Accomplice

The Court of Second Instance upheld the Court of First Instance’s decision and found that the second defendant had played an accomplice role in the crime. The Court noted that the defendants had obtained the funds for the stock purchases through loans from family members and creditors, who were aware of the insider information.

Continued Struggles with Insider Trading

Insider trading remains a problematic area due to the subjective elements, including the definition of the benefit, the number of counts involved, and the proof of the insider’s intention.

New Regulations

As of 2016, new EU rules were implemented to enhance transparency and investor protection in European financial markets. Hungary adopted additional laws accordingly:

1. The European Directive 2014/57/EU obliged Member States to implement stricter criminal laws against market abuse.
2. Two new offenses - unlawful disclosure of inside information and unlawful market manipulation - were added to the Hungarian Criminal Code.