R (Amro International SA and Another) v The Financial Services Authority & others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE STANLEY BURNTON,Lord Justice Jackson |
| Judgment Date | 24 February 2010 |
| Neutral Citation | [2010] EWCA Civ 123 |
| Docket Number | Case No: C1/2009/2024 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 February 2010 |
[2010] EWCA Civ 123
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE ADMINISTRATIVE COURT
Mr Justice Collins
Before: The President of the Queen's Bench Division
Lord Justice Stanley Burnton
and
Lord Justice Jackson
Case No: C1/2009/2024
Dinah Rose QC and Andrew George (instructed by The Financial Services Authority) for the Appellants
Charles Flint QC (instructed by Mishcon de Reya) for the Respondents
The Interested Party did not appear and was not represented.
Hearing date: 2 February 2010
Introduction
This is an appeal by the Financial Services Authority against the order dated 28 August 2009 made by Collins J in judicial review proceedings brought by the Claimants, Amro International SA (“Amro”) and Creon Management SA (“Creon”). The FSA had appointed the Second and the Third Appellants as investigators under section 169 of the Financial Services and Markets Act 2000 (“ FSMA”): I shall refer to them as “the Investigators”. They had issued a notice dated 4 August 2009 under sections 171 and/or 172 of FSMA to compel the production of certain documents from Goodman Jones LLP (“Goodman Jones”), who are accountants who acted for Amro and Creon and associated companies and individuals. That notice was subsequently amended by notice dated 11 August 2009.
The judge quashed the decision of the FSA to appoint the Investigators, and quashed the notices dated 4 and 11 August 2009 on Amro's undertaking to instruct Goodman Jones to produce to the FSA certain classes of documents, far narrower in extent than those sought by the Investigators.
The FSA contends that the judge erred in law in quashing its appointment of the Investigators and the notices of 4 and 11 August 2009. The Respondents submit that he was entitled to make, and rightly made, the order referred to above.
The appeal raises questions of general importance concerning the exercise by the FSA and its investigators of the powers conferred by FSMA in aid of foreign regulators.
The facts
The foreign regulator in this case is the Securities and Exchange Commission of the United States of America. Both the UK and the US regulators are parties to Memoranda of Understanding relating to international cooperation. The first, dated 25 September 1991, was entered into between the SEC and the Securities and Investment Board, the predecessor of the FSA. Part 3 of that MOU set out requirements for requests for information made under it by the SEC to the SIB and vice versa. In May 2002 both the UK and the US regulators entered into a multilateral MOU “concerning consultation and cooperation and the exchange of information” under the aegis of IOSCO, the International Organisation of Securities Commissions.
In June 2002, the SEC began an investigation into Rhino Advisors Inc. (“Rhino”) relating to trading in stocks. As a result of its investigation, in April 2006 the SEC instituted proceedings in the United States District Court for the Southern District of New York against, among others, Andreas Badian. In its complaint, the SEC alleged that in 2001 Mr Badian and others had engaged in fraudulent and manipulative trading in the shares of Sedona Corporation, a US company. Amro had loaned Sedona $2.5 million; Sedona had agreed to repay $3 million some 4 months later. The loan agreement permitted Amro to convert Sedona's debenture stock to ordinary shares at specified conversion dates. Obviously, the lower the market price of Sedona's shares at the conversion dates the more shares Amro could acquire. Mr Badian and others acted for Rhino, an unregistered investment adviser firm, one of whose clients was Amro. The complaint alleges that Mr Badian, with the assistance of the other defendants in those proceedings, engaged in concealed manipulation of Sedona's share price by a scheme of extensive short selling of the shares, in fraud of Sedona, in breach of the agreement between Sedona and Amro, and in violation of Federal securities laws.
In May 2003, Robert Charron, a New York lawyer, on behalf of Rhino made and served on the SEC a response to questions that Rhino had been required to answer under the Securities and Exchange Act 1934. In his response, he identified Creon, like Amro a client of Rhino, as a company that had engaged in conjunction with Amro in concealed dealing in Sedona shares during the relevant period. He said that Amro and Creon had a large number of companies, referred to as special purpose vehicles, or SPVs, that they used for their financing transactions. The statement listed those SPVs, and stated that three of them had purchased shares in Sedona stock, but not during the period of the alleged fraudulent trading.
By July 2009, discovery in the New York proceedings was apparently drawing to a close. When extending time for completion of non-expert discovery to 15 August 2009, the judge stated:
I grant this consent motion …. It is extremely unlikely that I will grant any further extensions; this case focuses on events that occurred in 1999 to 2002.
On 9 July 2009, the SEC requested a further extension for non-expert discovery to 31 August 2009; the other parties did not object to this, and on 24 July 2009 US Magistrate Judge Eaton granted the request.
On the same day (a Friday), the SEC sent to the FSA by email a request for assistance pursuant to the 1991 and the IOSCU MOUs. The heading to the letter of request was the NY action against Badian and others. The SEC sought the FSA's assistance:
in obtaining the production of documents from Goodman Jones Chartered Accountants (“Goodman Jones”), a London-based accounting firm that we have ascertained through discovery has (or had) records in its possession relating to entities and/or transactions relevant to the SEC's civil court action.
The SEC stated that Badian and others, acting for Rhino, had used short selling to manipulate Sedona's stock price downward to favour the financial interest of Rhino's clients, Amro, Creon and related SPVs identified in Exhibit A to the letter. That list was the list of SPVs that had been provided by Mr Charron. The letter stated:
The documents sought from Goodman Jones will show the identity of the owners of Amro, Creon, and the SPVs and the roles of those entities in the alleged fraud to manipulate Sedona's stock price.
The letter of request stated that the SEC had been ordered to complete discovery by 30 August 2009, and that it did not believe that an additional extension of time was possible. It requested the FSA's expedited assistance in obtaining the following documents from Goodman Jones:
1. All documents that relate to … Rhino, Amro, Creon … and/or their Special Purpose Vehicles, identified in Exhibit A to this letter, for the earlier of the date of Amro's incorporation or January 1, 2000 through the present, including, but not limited to:
a. All documents that reflect the legal and/or beneficial owners, and the persons who funded and/or directed their activities;
b. All memorandum or correspondence related to Rhino, Amro, Creon and/or their Special Purpose Vehicles; and
c. Bank, brokerage and/or depository accounts records of … Amro and/or Creon and/or their Special Purpose Vehicles (including, but not limited to opening account documents, monthly account statements, cancelled check, deposit slips, and/or wire transfers) in which any of them or persons affiliated with them had signatory or trading authority, and/or in which any of them had a legal or beneficial interest.
The SEC requested the FSA to compel production of these documents in the event that Goodman Jones refused to produce them.
On the following Monday 27 July 2009, Anila Bedi and Beth Connell of the FSA telephoned Isabela Reis and Jim McHale of the SEC to discuss the request. The written record of the telephone call states:
In particular, the FSA wanted to discuss the scope of the request and the relevance of information requested. In particular, the FSA could not understand the relevance of the information requested about Creon and a number of SPVs, as they were not referenced in the SEC's publicly available complaint. The FSA wanted to discuss the following areas of concern with the SEC:
1. How are Goodman Jones related – who are their clients?
2. Who are Creon and what is their involvement as they are not mentioned in the SEC complaint?
3. How are the SPVs related?
4. Why is the timeframe so wide considering conduct in question was prior to 2003?
The FSA explained that the request for assistance did not clearly show why the information requested was relevant. The record of the telephone call continues:
The SEC explained that the fraudulent action by Andreas Badian as contained in the SEC's request was not an isolated incident and that Andreas Badian and other members of the Badian family had been involved in repeated fraudulent and manipulative practices. The SEC explained that Creon was an organisation that had been identified during discovery which has the same status as Amro and appeared to be involved in the same manipulative transactions. The SEC believe that both Amro and Creon are ultimately owned by members of the Badian family and that Andreas Badian personally profited from the manipulative trading in question.
Ms Bedi explained that there were two problems. The first was logistical:...
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