First time a High Court injunction has been obtained to stop market abuse
The Financial Services Authority (the FSA) announced on 24 May 2011 that the High Court had granted a final injunction restraining an individual, Mr Samuel Kahn, from committing market abuse. The result of the injunction is effectively to criminalise any future market abuse by Mr Kahn. The FSA’s press release is here and its Final Notice for Mr Kahn is here. The offence of market abuse is contained in section 118 of the Financial Services and Markets Act 2000 (FSMA 2000) and is summarised by the FSA here.
Mr Kahn was the subject of an FSA enforcement action relating to overseas boiler-room activities in 2007 and was subsequently made bankrupt by the FSA. In 2010 Mr Kahn, in the words of the FSA, “co-ordinated a scheme to deliberately inflate the share price” of a company quoted on PLUS Stock Exchange, GBL:
“Kahn orchestrated and controlled the vast majority of the trading in GBL’s shares in March and April 2010, disguising his involvement in the scheme by repeatedly impersonating other people when placing orders to trade in GBL’s shares and co-ordinating trading conducted by third parties. The trading moved GBL’s share price from 2p on 24 March 2010 to 5.25p at its height on 20 April 2010. The profits from this trading were withdrawn from a third party’s bank account at Kahn’s instruction and delivered to him in cash.”
Given Mr Kahn’s previous misconduct in 2007 and the serious, deliberate and repeated nature of the 2010 offence and its market impact, the FSA has for the first time exercised its powers under the FSMA 2000 to obtain a final injunction against an individual to restrain market abuse. Mr Kahn was also fined £1,094,900. Mr Kahn never worked at an authorised firm regulated by the FSA.
Market abuse under section 118 of the FSMA 2000 is a civil offence. Breach of the injunction obtained by the FSA would be contempt of court, an imprisonable offence, and so the consequence of the injunction is effectively to criminalise any future market abuse committed by Mr Kahn.
Friendly Corporate PSL
To subscribe for our free weekly update e-mail, click here.