A principled front in the war against market abuse

Published date31 July 2007
Pages331-336
DOIhttps://doi.org/10.1108/13581980710762318
Date31 July 2007
AuthorRichard Burger
Subject MatterAccounting & finance
A principled front in the war
against market abuse
Richard Burger
Mills & Reeve Solicitors, Cambridge, UK
Abstract
Purpose The purpose of this study is to consider the case of Sean Pignatelli and consider
surrounding commentary on the misuse of market information.
Design/methodology/approach – The paper reviews the Financial Services Authority’s (FSA)
Final Notice and related publications.
Findings – The paper finds that there may be limitations to the use of the market abuse regime and
therefore the FSA may consider the greater use of Principles to “punish” those who engage in market
misconduct.
Originality/value – This study will be of interest to approved persons, compliance officers and
regulatory lawyers.
Keywords Crimes, Financialmanagement, Insider trading
Paper type Case study
Introduction
Although it has been a criminal offence since 1980[1] to use inside information when
dealing in UK listed securities; the infrequency and relatively low conviction rate[2]
shows how incredibly difficult it is to successfully prosecute such cases.
Industry calls for a new regime were answered when the Financial Services and
Markets Act 2000 created a new “civil offence” of market abuse. Taking elements from
the criminal legislation, but with the civil standard of proof – on the balance of
probabilities, the market abuse regime was seen as a more flexible tool to tackle insid er
dealers. However, recent judgments from the Financial Services and Markets Tribunal
(the Tribunal) suggest that the criminal standard of proof beyond all reasonable
doubt, is required to prove market abuse.
If an individual or firm disagrees with the Financial Services Authority’s (FSA)
finding of market abuse then it can refer the matter to the Tribunal. In 2006, the
Tribunal considered the referral of chartered accountant, James Parker[3]. Mr Parker
was employed, at the relevant time, as a credit risk and treasury manager with a
company listed on the London Stock Exchange. The FSA believed that armed with
knowledge that his company was experiencing difficulties with a major customer and
that takeover negotiations with a significant competitor had been abandoned, he sold
part of his shareholding in the company and placed strategic spread bets in advance of
the company issuing an adverse announcement to the market. The FSA subsequently
fined Mr James Parker £300,000 for market abuse.
Sliding standard of proof
In finding for the FSA, the Tribunal gave useful guidance on the interpretation of
market abuse. In relation to the standard of proof the Tribunal commented:
...there can be no doubt, in our view, that an allegation that an individual has been guilty of
conduct for which he should be punished by the imposition of a penalty of £300,000 is a very
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
War against
market abuse
331
Journal of Financial Regulation and
Compliance
Vol. 15 No. 3, 2007
pp. 331-336
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980710762318

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