Gambling 2018 | Germany
He says that 11 high ranking officers were involved, two police sergeants and eight constables Several minutes later two cops returned with red faces and suddenly they were all out of the cell and I was allowed to get dressed. First and foremost, liability and enforcement are clearly subject to German law and the German authorities. They are defending GlaxoSmithKline against a number of claims brought under a group litigation order regarding the antidepressant drug Seroxat, where the claimants allege that discontinuing the drug amounts to personal injury; the case will be heard in The firm regularly advises on cross-border matters spanning the US, Europe and Asia, and has notable expertise in Hong Kong and China-related issues.
The Supreme Court ruled that the tippee could not have been aiding and abetting a securities law violation committed by the insider—for the simple reason that no securities law violation had been committed by the insider. In Dirks , the Supreme Court also defined the concept of "constructive insiders," who are lawyers, investment bankers and others who receive confidential information from a corporation while providing services to the corporation.
Constructive insiders are also liable for insider trading violations if the corporation expects the information to remain confidential, since they acquire the fiduciary duties of the true insider. The next expansion of insider trading liability came in SEC vs.
Materia  F. Materia, a financial printing firm proofreader, and clearly not an insider by any definition, was found to have determined the identity of takeover targets based on proofreading tender offer documents during his employment. After a two-week trial, the district court found him liable for insider trading, and the Second Circuit Court of Appeals affirmed holding that the theft of information from an employer, and the use of that information to purchase or sell securities in another entity, constituted a fraud in connection with the purchase or sale of a securities.
The misappropriation theory of insider trading was born, and liability further expanded to encompass a larger group of outsiders. In United States v. Carpenter  the U. Supreme Court cited an earlier ruling while unanimously upholding mail and wire fraud convictions for a defendant who received his information from a journalist rather than from the company itself. Foster Winans was also convicted, on the grounds that he had misappropriated information belonging to his employer, the Wall Street Journal.
In that widely publicized case, Winans traded in advance of "Heard on the Street" columns appearing in the Journal. The Court stated in Carpenter: However, in upholding the securities fraud insider trading convictions, the justices were evenly split.
In , the U. Supreme Court adopted the misappropriation theory of insider trading in United States v. O'Hagan ,  U. O'Hagan was a partner in a law firm representing Grand Metropolitan , while it was considering a tender offer for Pillsbury Company.
O'Hagan claimed that neither he nor his firm owed a fiduciary duty to Pillsbury, so he did not commit fraud by purchasing Pillsbury options. The "misappropriation theory" holds that a person commits fraud "in connection with" a securities transaction and thereby violates 10 b and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information.
Under this theory, a fiduciary's undisclosed, self-serving use of a principal's information to purchase or sell securities, in breach of a duty of loyalty and confidentiality, defrauds the principal of the exclusive use of the information. In lieu of premising liability on a fiduciary relationship between company insider and purchaser or seller of the company's stock, the misappropriation theory premises liability on a fiduciary-turned-trader's deception of those who entrusted him with access to confidential information.
The Court specifically recognized that a corporation's information is its property: The undisclosed misappropriation of such information in violation of a fiduciary duty In , the SEC enacted SEC Rule 10b , which defined trading "on the basis of" inside information as any time a person trades while aware of material nonpublic information.
It is no longer a defense for one to say that one would have made the trade anyway. The rule also created an affirmative defense for pre-planned trades. In , in the case of United States v. Newman , the United States Court of Appeals for the Second Circuit cited the Supreme Court's decision in Dirks , and ruled that for a "tippee" a person who used information they received from an insider to be guilty of insider trading, the tippee must have been aware not only that the information was insider information, but must also have been aware that the insider released the information for an improper purpose such as a personal benefit.
The Court concluded that the insider's breach of a fiduciary duty not to release confidential information—in the absence of an improper purpose on the part of the insider—is not enough to impose criminal liability on either the insider or the tippee.
In , in the case of Salman v. United States , the U. Supreme Court held that the benefit a tipper must receive as predicate for an insider-trader prosecution of a tippee need not be pecuniary, and that giving a 'gift' of a tip to a family member is presumptively an act for the personal though intangible benefit of the tipper.
Members of the US Congress are exempt from the laws that ban insider trading. Because they generally do not have a confidential relationship with the source of the information they receive, however, they do not meet the usual definition of an "insider. A study found that stock sales and purchases by Senators outperformed the market by Also the same day trade effective the next day , Congressman Boehner cashed out of an equity mutual fund.
In May , a bill entitled the "Stop Trading on Congressional Knowledge Act, or STOCK Act " was introduced that would hold congressional and federal employees liable for stock trades they made using information they gained through their jobs and also regulate analysts or "Political Intelligence" firms that research government activities. In , federal prosecutors issued a subpoena to the House Ways and Means committee and Brian Sutter, staff director of its health-care sub-committee, relative to a price move in stocks just prior to the passage of a law favorable to the companies involved.
An e-mail was sent out by a "Washington-based policy-research firm that predicted the change [in the law] for its Wall Street clients. That alert, in turn, was based in part on information provided to the firm by a former congressional health-care aide turned lobbyist, according to emails reviewed by the [Wall Street] Journal " in Security analysts gather and compile information, talk to corporate officers and other insiders, and issue recommendations to traders.
Thus their activities may easily cross legal lines if they are not especially careful. The CFA Institute in its code of ethics states that analysts should make every effort to make all reports available to all the broker's clients on a timely basis. Analysts should never report material nonpublic information, except in an effort to make that information available to the general public.
Nevertheless, analysts' reports may contain a variety of information that is "pieced together" without violating insider trading laws, under the Mosaic theory. Easterbrook have argued that laws against insider trading should be repealed. They claim that insider trading based on material nonpublic information benefits investors, in general, by more quickly introducing new information into the market.
Friedman, laureate of the Nobel Memorial Prize in Economics , said: You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that. Other critics argue that insider trading is a victimless act: The Atlantic has described the process as "arguably the closest thing that modern finance has to a victimless crime. Legalization advocates also question why "trading" where one party has more information than the other is legal in other markets, such as real estate , but not in the stock market.
For example, if a geologist knows there is a high likelihood of the discovery of petroleum under Farmer Smith's land, he may be entitled to make Smith an offer for the land, and buy it, without first telling Farmer Smith of the geological data. Advocates of legalization make free speech arguments. Punishment for communicating about a development pertinent to the next day's stock price might seem an act of censorship. Some authors have used these arguments to propose legalizing insider trading on negative information but not on positive information.
Since negative information is often withheld from the market, trading on such information has a higher value for the market than trading on positive information. There are very limited laws against "insider trading" in the commodities markets if, for no other reason than that the concept of an "insider" is not immediately analogous to commodities themselves corn, wheat, steel, etc.
However, analogous activities such as front running are illegal under US commodity and futures trading laws. For example, a commodity broker can be charged with fraud by receiving a large purchase order from a client one likely to affect the price of that commodity and then purchasing that commodity before executing the client's order to benefit from the anticipated price increase.
The advent of the Internet has provided a forum for the commercialisation of trading on insider information. In a number of dark web sites were identified as marketplaces where such non-public information was bought and sold. At least one such site used bitcoins to avoid currency restrictions and to impede tracking.
Such sites also provide a place for soliciting for corporate informants, where non-public information may be used for purposes  other than stock trading. The US and the UK vary in the way the law is interpreted and applied with regard to insider trading. This is a much broader scope that under U.
The key differences from U. Japan enacted its first law against insider trading in Roderick Seeman said, "Even today many Japanese do not understand why this is illegal. Indeed, previously it was regarded as common sense to make a profit from your knowledge. In Malta the law follows the European broader scope model. The discussion of these "Core Principles" state that "investor protection" in this context means "Investors should be protected from misleading, manipulative or fraudulent practices, including insider trading, front running or trading ahead of customers and the misuse of client assets.
The World Bank and International Monetary Fund now use the IOSCO Core Principles in reviewing the financial health of different country's regulatory systems as part of these organization's financial sector assessment program, so laws against insider trading based on non-public information are now expected by the international community. Enforcement of insider trading laws varies widely from country to country, but the vast majority of jurisdictions now outlaw the practice, at least in principle.
Larry Harris claims that differences in the effectiveness with which countries restrict insider trading help to explain the differences in executive compensation among those countries. All EU Member States agreed to introduce maximum prison sentences of at least four years for serious cases of market manipulation and insider dealing, and at least two years for improper disclosure of insider information.
In , a journalist in Nettavisen Thomas Gulbrandsen was sentenced to 4 months in prison for insider trading. The longest prison sentence in a Norwegian trial where the main charge was insider trading, was for eight years two suspended when Alain Angelil was convicted in a district court on December 9, Although insider trading in the UK has been illegal since , it proved difficult to successfully prosecute individuals accused of insider trading.
There were a number of notorious cases where individuals were able to escape prosecution. Instead the UK regulators relied on a series of fines to punish market abuses. These fines were widely perceived as an ineffective deterrent Cole, ,  and there was a statement of intent by the UK regulator the Financial Services Authority to use its powers to enforce the legislation specifically the Financial Services and Markets Act Between — the FSA secured 14 convictions in relation to insider dealing.
With the guilty plea by Perkins Hixon in for insider trading from while at Evercore Partners , Bharara said in a press release that defendants whom his office had charged since August had now been convicted.
On December 10, , a federal appeals court overturned the insider trading convictions of two former hedge fund traders , Todd Newman and Anthony Chiasson , based on the "erroneous" instructions given to jurors by the trial judge. Attorney  and the SEC  in did drop their cases against Steinberg and others. Walters's source, company director Thomas C. Davis employing a prepaid cell phone and sometimes the code words "Dallas Cowboys" for Dean Foods, helped him from to realize profits and avoid losses in the stock, the Federal jury found.
In the trial, investor Carl C. Icahn was mentioned in relation to Walters's trading but was not charged with wrongdoing. Walters's lawyer said he would appeal the verdict. Cornblum committed suicide before criminal charges were laid. Grmovsek pleaded guilty and was sentenced to 39 months in prison.
This was the longest term ever imposed for insider trading in Canada. These crimes were explored in Mark Coakley 's non-fiction book, Tip and Trade. On October 1, , Chinese fund manager Xu Xiang was arrested due to insider trading. Insider trading is when one with access to non public, price sensitive information about the securities of the company subscribes, buys, sells or deals, or agrees to do so or counsels another to do as principal or agent. Price sensitive information is information that materially affects the value of the securities.
The penalty for insider trading is imprisonment, which may extend to five years, and a minimum of five lakh rupees five hundred thousand to twenty five crore rupees two hundred and fifty million or three times the profit made, whichever is higher.
Insider trading is legal as long as disclosure of the holdings and trading in securities of the company is done by the insiders. Any other connected person or group of connected persons shall also disclose their holdings under this regulation. The gist of these rules is that an insider cannot trade on non-public information until that information is disclosed, and cannot tip people off using non-public information.
Promoters, key managerial personnel and director of every company whose securities are listed on any recognized exchange shall disclose his holding of securities within 30 days of these regulations taking effect to the company. Every person on appointment as key managerial personnel, director of the company or upon becoming a promoter shall disclose his holding of securities of company within 7 days of such appointment to the company. Every promoter, director or employee of the company shall disclose to the company, the number of securities acquired or disposed of within two days of such transaction, if the value of securities traded through one transaction or series of transaction in a calendar quarter exceeds 10 lakh rupees or any other value as may be prescribed.
From Wikipedia, the free encyclopedia. Redirected from Inside information. For other uses, see Inside Information disambiguation. Speech by SEC Staff: Insider Trading — A U. The Impact of Enforcement" by John C. Archived from the original on 30 June Newman , F. Securities and Exchange Commission. Retrieved March 23, Lotteries may not be operated by private operators.
They are subject to the state monopoly, i. Material promotion and advertising restrictions in relation to the above: Advertising of games of chance is subject to a very restrictive regime in Germany and is affected by an abundance of laws and regulations, including the Interstate Treaty, the Gaming Acts of the individual states, the Advertising Guidelines, the Code of Practice of the German Advertising Council, the Act Against Unfair Competition and specific minor protection legislation, such as, e.
Operators will typically be required to submit a marketing concept as part of their licence application, which sets out how they intend to advertise their products whilst sufficiently ensuring player protection at the same time.
Often, in particular, in the land-based casino sector, the licences issued will specify further advertising restrictions. Any advertising of unauthorised games of chance, misleading advertising or advertising directed at minors or other risk groups is prohibited, as is most online and TV advertising.
Exceptions to the prohibition on online and TV advertising apply in relation to sports betting, horse race betting and lotteries where operators can apply for specific advertising permits. However, since no sports betting licences have been issued so far and the constitutionality of the Advertising Guidelines has been called into question, these are of limited practical relevance.
A characteristic of the taxation of gambling products is that it largely depends on the product type and the regulations in the respective federal state.
Accordingly, tax rates vary considerably throughout Germany. Land-based casino operators are exempt from corporate taxation but must generally pay taxes on gross gaming revenue i. Some states impose additional levies or apply progressive tax rates depending on the economic capability of the casino operator. In addition to regular corporate taxes, slot machine operators have to pay municipal amusement tax. Since 1 January , all online casino operators, not only the non-EU-based online casino operators, have been subject to VAT.
A significant fiscal risk for online casino operations in Germany was thereby removed. Some of the main objectives of the Interstate Treaty are the prevention of addiction and criminal acts, channelling the market away from the black market and to ensure the integrity of sports.
Starting with the qualification and reliability of the operators being prerequisites for acquiring a licence, there are many other requirements linked to social responsibility.
In essence, these concern the protection of players and minors and the safety of the gambling operations. Safety, in this context, especially means safe payment and transaction methods, adhering to youth, customer and data protection laws, keeping AML and IT standards and being reliable in paying taxes and levies. Operators need to be familiar with the impact of games of chance and the inherent risk of addiction and show this in their social concepts.
They have to train their staff on detecting problematic players and gambling behaviour and on the responsible operation, execution and commercial brokerage of public games of chance. Players should be encouraged to assess their own gambling activities by reality checks and self-tests, need to be able to set their own deposit or loss limits and need to be made aware of the risk of addiction through brochures or responsible gaming websites.
Gambling operators are required to offer information on where players may seek help such as contact details of support services counselling and therapy.
Players need to be informed about self- and third-party barring and made aware of the possibility of taking gaming breaks. Social responsibility also means ensuring that minors and barred players do not participate in gaming activities.
Does your jurisdiction permit virtual currencies to be used for gambling and are they separately regulated? German regulators have made it very clear that they intend to apply the standards and requirements regarding AML to online gaming operators if these target German customers. Consequently, online gaming operators serving German customers are advised to adopt appropriate and extensive risk management systems and to familiarise themselves with the extensive requirements, e.
As expected in the course of the implementation of the 4AMLD, AML obligations have also been extended to more land-based operations which primarily affect sport betting retail outlets. Taxation will play a role in the assessment of whether the incorporation of virtual currencies makes sense from an economic perspective. Bitcoins act as a good example. The written law of the Interstate Treaty generally prohibits the operation and brokerage of online games of chance.
The only exceptions provided by the Interstate Treaty in this context regard sports betting, horse race betting and lotteries. Yet, the licensing process for these sports betting licences, which was initiated in , failed and has been held to be incompatible with EU law. The 20 licences provided for by the Interstate Treaty, as a result, cannot be issued lawfully under the current legal framework. The German states have therefore entered into reform discussions which resulted in the German states agreeing on the Amendment Treaty in March The Amendment Treaty was to enter into force on 1 January following ratification in each of the 16 state parliaments.
Schleswig-Holstein — following a change in government — has now, however, on various occasions announced that it does not intend to ratify the Amendment Treaty which would make it obsolete. Interestingly, Schleswig-Holstein seeks to introduce a viable and EU-law-compliant gambling regulation on the basis of its former Gambling Act, potentially with other German states, namely Hesse, North Rhine Westphalia and Rhineland Palatine, so interesting times lie ahead for online gambling operators in this regard.
On 26 October , however, the Federal Administrative Court, i. At the time of writing, the full written judgment has not been published yet. According to an official press release published by the Federal Administrative Court a day after the hearing and from what is known about the hearing, however, the Federal Administrative Court confirmed the legality of the online casino ban in light of national and EU law.
It also seems to have indicated that operations of sports betting operators who did not participate in the sports betting licensing process could be unlawful and that — contrary to what had been confirmed by the CJEU in Ince and Unibet — the sports betting licensing process may have been lawfully conducted after all.
This seems legally questionable. The operation of traditional lotteries via the internet is reserved for the state-controlled lottery operators, but private operators may engage in brokerage of lottery products via the internet, subject to a brokering licence.
Operating and brokering licences for horse race betting are available pursuant to sec. According to the Interstate Treaty provisions, all online operators have to ensure that minors and barred players are excluded by applying identification and verification methods and that some kind of stake limit the Interstate Treaty suggests a limit of EUR 1, for online betting is in place.
Players must have the possibility of self-limitation and must be prohibited from taking loans from the gambling operators. The Interstate Treaty further requires there to be no specific addiction stimuli through fast repetition, a social concept taking the online-specific circumstances into account including a scientific evaluation of the effectiveness of the social concept and demands that betting and lottery products be offered from separate internet domains and that the separate sites may not be linked to each other.
The Interstate Treaty not only prohibits the operation and brokerage of online gambling, but also advertising for games of chance on the internet.
Certain licensed operators sports betting, horse race betting, lotteries may, however, apply for individual or general permits with the Regional Government of Duesseldorf in the state North-Rhine Westphalia.
As per the Interstate Treaty, any advertising of gambling products needs to comply with the conditions set out in sec. Machine-based gaming is only permitted in land-based casinos, restaurants, bars and gaming halls, and only subject to a licence. Online slots are, at the moment, not permitted outside of a Schleswig-Holstein licence. The Gaming Ordinance allows for a maximum of three machines to be operated in restaurants and bars and a maximum of 12 machines per gaming hall.
It further imposes gaming limits maximum stakes, maximum losses, etc. Machine gaming is also subject to the Interstate Treaty and the respective state laws. None of the above restrictions, however, apply to machine gaming in state-owned casinos. Organising games of chance without an official licence or permit may be regarded as a criminal offence as per sec. Criminal proceedings have, however, so far rarely been initiated. More commonly, interdiction orders based on sec. Licence holders have to fear the revocation of their licences if they turn out to be unreliable or breach certain licence conditions, etc.
Milder forms of punishment are the suspension of the licence for three months or a reduction of the overall duration of the licence. First and foremost, liability and enforcement are clearly subject to German law and the German authorities. However, being part of the European Union, German law is, of course, influenced by European law and European case-law. In recent years, German enforcement authorities, in particular German prosecutors, have been reluctant to enforce gambling law violations, one explanation for this likely being that German gambling regulation has been characterised by legal uncertainty due to it facing severe criticism in light of EU law for years now.
In relation to sports betting, the CJEU on 4 February confirmed that any enforcement action brought against sports betting operators in a situation where an unlawful de facto monopoly persists as held to be the case in Germany is incompatible with EU law cf. It will have to be assessed whether and to which extent the recent judgment of the Federal Administrative Court which was handed down on 26 October impacts on these findings and the approach so far taken by German prosecutors.
However, due to sec. A further exception applies due to sec. The same arguably applies to sports betting debts from a licensed operation, once the sports betting licences will be granted. A first attempt at such reforms lead to the German states agreeing on the Amendment Treaty, which was intended to enter into force following ratification of the Amendment Treaty in each of the 16 state parliaments.
It is possible that the Amendment Treaty could become obsolete and that the German states will have to go back to the drawing board as a result of the decisions agreed by the newly elected Schleswig-Holstein government consisting of Conservatives, Liberals and Greens, which were confirmed in a parliamentary vote in the Schleswig-Holstein parliament at the end of September Schleswig-Holstein has, meanwhile, on multiple occasions, announced that it intends to not ratify the Amendment Treaty, to opt out of the Interstate Treaty and to, instead, potentially with other German states, seek a viable and EU law-compliant sports betting and online casino regulation.
Interestingly, the also newly elected North Rhine Westphalian government has stopped all ratification efforts in relation to the Amendment Treaty for the time being to monitor the developments. For the Amendment Treaty to enter into force as planned, it would have to be ratified by all German states by the end of December Still, German states which have been known to be reluctant to embrace change can, in the meantime, be expected to attempt stabilising the old regulation and initiating enforcement for alleged violations of Interstate Treaty restrictions.
The judgment of the Federal Administrative Court of 26 October , in which the compatibility of the total ban with national and EU law seems to have been confirmed, will certainly encourage these states to continue or increase their enforcement attempts.
It is yet to be seen to which extent the judgment will also impact on other states and the developments at political level including the reform endeavours. In light of the potential increase of risks associated with operating in the unregulated German market as a consequence of the new judgment, it will be vital for the industry to promote a broader reform of the Interstate Treaty and increase lobbying efforts.
The authors would like to acknowledge a third author, Jessica Maier, LL. Jessica Maier advises clients on all aspects of gambling law with a focus on regulation, licensing and compliance. She has been involved in regulatory due diligence reviews in the context of corporate acquisitions and also supports clients in competition and antitrust-related issues as well as in administrative court proceedings or out-of-court negotiations and interactions.
She has provided guidance to clients in various licensing proceedings and advises clients on the regulatory developments in Germany which impact on their business.