1. Legal Aspects of Finance
Slide Set 9a
Insider and Disclosure Duty Case:
KKO 2009:1 (TJ Group Plc)
Matti Rudanko

2. (Helsinki District Court Jan 26, 06)
Indictment, points 1- 6: Information crime relating to the securities markets
Issue of TJ Group Feb. 7 – 11, 2000
emission arrangement (acquisition of subscribers for investment targets or arrangement of said subscriptions) by Evli Corporate Finance Oy (ECF)
False and misleading information on future prospects and the result as well as of the economic status of the group in listing particulars, published Feb. 2, and in an attached interim report :
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3. TJ Group Indictment
The interim accounts attached to the listing particulars contained false and misleading entries i.a. on result reporting by subsidiaries, antedating invoices, entering group reserves and sales as income and entering marketing costs and stock of projects. As a result, the profit of the group increased with 0,95 M€ and the turnover with 0,7 M€, turning a loss of 0,52 M€ to a gain of 0,082 M€. So, the information given in an stock exchange announcement of Jan. 26 and in the listing particulars on the result turning positive was not true
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4. TJ Group Indictment
More false and misleading information in the stock exchange announcement and the listing particulars:
TJ Group aims at the European market leadership, which is believed to become true in two years, and at the position as one of the leading companies of the branch in the world
A large investment program already initiated weakens the relative earning capacity of the company but is a basis for long-term strong growth of the turnover and a European market leadeship. The group thinks to be among the few Internet consulting firms in the world whose business result remains positive
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5. TJ Group Indictment, cont.
The markets can still be reached easily, and within a year the company expands to Europe by launching business in Northern, Central and Southern European markets through acquisitions and organic growth
The company had no basis for presenting such prospects for the future because
the business of the company as well as the group was unprofitable since autumn 1999
The subsidiaries bought autumn 1999 did not significantly strengthen the result of the group
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6. TJ Group Indictment, cont.
the budget of the group Spring 2000 was clearly unrealistic
the presented plan for expansion was not well-grounded
Indictment, points 7- 9: gross abuse of inside information
In connection with the issue of securities, the main owners sold shares knowing that the information given in the prospectus about the future prospects, result and economic situation of the company was false and misleading
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7. The Court Decision
According to the evidence, most entries were made correctly, but Marketing costs and stock of projects should have been periodized according to clear entering criteria and income expectations (now lacking, rendering the accounts contrary to law)
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8. The Court Decision, cont.
the insufficiency did not cause false entries nor render the information included in the interim accounts and given in marketing false or misleading
the manager of the issue management firm ECF could rely on the audit report and had no duty to investigate the individual entries of companies in the group
an information crime requires that the accused, when fulfilling their duties of disclosure under the Securities Markets Act, have submitted such false or misleading information relating to the security which is likely to have material effect on the value of the security
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9. The Court Decision, cont.
Whether the wrong information is likely to have material effect on the value of the security is defined by judging if the so-called careful investor would have made the same investment decision aware of the proper result information, in addition to the market value of the company and the general growth expectations of the branch
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10. The Court Decision, cont.
The situation in the branch was in the beginning of the year 2000 very exceptional, which should affect the evaluation of the impact of the business result on the value of the shares of the company the difference between the wrong figures and the proper ones was relatively small in comparison with other economic indicators concerning the group, and their significance to investors very small in the said market situation
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11. The Court Decision, conclusion
The wrong information in the interim accounts was not likely to have material effect on the value of the security in the issue The material effect requirement in the description of the information crime relating to the securities markets in the Penal Code, Ch. 51, Section 5 is not fulfilled The indictment point 1 is to be dismissed. Information crime: only failure to publish a profit warning in time was attributed to the main owners. Punishment: fines The indictment for insider crime by them and other board members was also dismissed.
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12. The Error in the Decision
There is no material effect requirement in the description of the information crime relating to the securities markets as included in the applied Penal Code, Ch. 51, Section 5 (subsect. 1)
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13. Court of Appeal and Supreme Court
A corporate fine of euros was imposed on TJ Group The main owners were sentenced to two years conditional imprisonment for information crime and gross abuse of inside information (the director of finance 5 months conditional imprisonment for aiding and abetting) The Court of Appeal: the main owners knowingly manipulated the result spring 2000 and made use of inside information when selling shares February 2000 A criminal profit of 7,8 million euros was confiscated Supreme Court decision (KKO 2009:1): the sentence of the main actors was turned unconditional This is the strictest insider sentence ever given in Finland
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