FSA fines corporate finance adviser £150,000 and bans him
The Upper Tribunal (Tax and Chancery Chamber) has today directed the Financial Services Authority (the FSA) to fine a corporate finance adviser, a Mr Massey, £150,000 and to ban him from regulated functions for engaging in market abuse.
Short selling, knowing that new shares to fill the short would be issued to him upon his request
The FSA’s pithy summary of Mr Massey’s offence is here. In essence, Mr Massey sold shares in an AIM company short at 8p per share. Mr Massey was able almost immediately to fill the short as he knew that it was highly likely that the AIM company would, upon his application, accept his offer to subscribe for the number of shares needed to fill the short at 3.5p per share.
Whilst the market was aware that the AIM company was likely to make a discounted offer of shares, the market did not know the amount of the discount, or that Mr Massey had a long relationship with the AIM company, or that the company was likely to issue new, heavily discounted, shares to Mr Massey upon his application.
Offence under the Financial Services and Markets Act 2000
Mr Massey was found guilty of the civil offence of market abuse under section 118(2) of the Financial Services and Markets Act 2000 (the FSMA), dealing “in a qualifying investment…on the basis of inside information relating to the investment in question”.
The Tribunal judgment contains a detailed debate as to whether the information available to Mr Massey was “of a precise nature…and…likely to have a significant effect on the price” of the AIM company’s shares, as required by section 118C(2), and concludes that it was.
Mr Massey’s defence
Mr Massey tried to rely on the statutory defence in section 123(2)(a) of the FSMA, that “he believed, on reasonable grounds, that his behaviour” did not fall within the definition of market abuse.
The FSA had no time for this defence, taking the view that Mr Massey “deliberately traded knowing full well that he was committing market abuse”. The Tribunal reached the same conclusion but was slightly more nuanced, concluding that Mr Massey was “(rightly) concerned about whether he was entitled to do what he did, but by a process of wishful thinking persuaded himself on inadequate grounds that he was so entitled”.
But the Tribunal adds: “Wishful thinking is not the same as having a belief on reasonable grounds that his behaviour did not fall within the definition of market abuse.”
UPDATE 18 April 2012: A note discussing this case by Kingsley Napley is sympathetic to Mr Massey.
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