A SERIES of crackdowns on insider trading is currently proceeding in the US.

Just last month, a case was initiated against US billionaire Raj Rajaratnam, founder of hedge fund firm Galleon Group, and five others for allegedly profiting US$20 million (RM68.2 million) illegally from the stock market.

And last week, the US government widened its nets to 14 other “conspirators” who had allegedly made US$20 million in illegal profits from trading in stocks such as network-equipment manufacturer 3Com Inc using inside information.

It is not the first time the US authorities have moved to nail the perpetrators of insider-trading crimes. Even celebrities are not spared. A few years back, Martha Stewart received a five-month jail sentence for having sold stock on insider information.

But in Malaysia, it is hard to recall the last time our regulator charged somebody for committing a crime of insider trading.

Does that mean there is no insider trading in Malaysia and that our capital market is squeaky clean? How can this be?

There is a dangerous tendency that we have come to accept it as a “norm” that a company’s stock price would shoot up before the official announcement of a major takeover exercise or material development.

Although Bursa Malaysia always queried listed companies for irregular stock price movements, or more popularly known as “UMA (unusual market activity)”, this has often been met with standard replies from the companies, and that will be it.

That the stock price of Transocean Holdings Bhd jumped 32% last Friday, prior to the company announcing the receipt of a takeover offer, warrants further discussion.

It is hard for one not to be suspicious, for instance, when Transocean’s stock price shot up 21 sen or 32% last Friday to close at 86.5 sen at 3.41pm, before it was suspended. During the day, close to 700,000 shares were transacted.

Transocean’s stock had rallied last Friday before the company suspended the trading of its shares late afternoon and announced to Bursa that it had received a takeover offer pricing the freight forwarder at RM1 apiece. The offer price was 52.7% higher than its closing price of 65.5 sen last Thursday.

Could it be that information regarding the takeover offer was leaked out before the shares were suspended, with the announcement made, and that someone had acted on the information to purchase stocks of the company to take advantage of the lucrative RM1 offer price?

The takeover offer for Transocean came about as Kumpulan Kenderaan Malaysia Bhd (KKMB), a private vehicle controlled by Proton Holdings Bhd’s chairman Datuk Mohd Nadzmi Mohd Salleh, last Friday acquired a 100% stake in Lengkap Suci Sdn Bhd, which in turn owns a 28.29% stake in Transocean.

The purchase by KKMB of Lengkap Suci raises its total interests (together with parties acting in concert) in Transocean to more than 33%, hence triggering a general offer.

Save for the Nov 6 announcement, there were no signs of a takeover of Transocean prior to that. While Transocean had on Nov 5 announced the sale of two wholly owned subsidiaries to certain employees, the value of the disposals was small — at a total of RM1.24 million.  

To be fair to Malaysia’s capital market, not all takeover targets had their share price rallying before official announcement. For instance, the takeover offer for construction firm Kumpulan Jetson Bhd by the “Naza brothers” two months ago was well under wraps. The stock rallied only after the announcement was made.

While Kumpulan Jetson’s stock price continued to surge well beyond the Naza brothers’ takeover price of RM1, to more than RM2 now, due to “speculation” or “rumour” that the company may land a major property development project along Jalan Duta, that is of a different matter.

Looking at the fact that gigantic deals overseas, such as Berkshire Hathaway Inc’s US$26 billion takeover of Burlington Northern Santa Fe at a 31% premium, or Panasonic Corp buying Sanyo Electric at 39% discount for US$4.4 billion, could be kept well under wrap and with no irregular trading activities on their stocks, the same standard should be followed in Malaysia.

In a nutshell, regulators should look into whether there were any irregularities regarding the trading of Transocean shares prior to its announcement on the takeover offer. It is only through stern action and the ensuing penalty that insider-trading activities in any form will be reduced in the local capital market.