Paul Davidson and Ashley Tatham v The Financial Services Authority
| Jurisdiction | UK Non-devolved |
| Judge | Judge Brice,Member Chapman,Member Parsloe |
| Subject Matter | Financial Services,16 May 2006 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Date | 16 May 2006 |
| Published date | 01 December 2016 |
MARKET ABUSE – company to be listed on the Alternative Investment Market – take up of
shares in the placing slow – the idea emerged that if a spread bet were placed then the
spread betting firm would hedge the bet through a contract for differences with a
counterparty who would then hedge the contract for differences by purchasing shares in the
placing thus completing the placing – whether either or both of the Applicants engaged in
market abuse – no – whether penalties should have been imposed – no – whether the
amounts of the penalties were appropriate - no – whether Mr Tatham was in breach of
Principles 2 and 3 – no – references determined in favour of the Applicants – FSMA 2000 Ss
64, 66, 118 and 123
FINANCIAL SERVICES AND MARKETS TRIBUNAL
PAUL DAVIDSON
First Applicant
ASHLEY TATHAM Second Applicant
- and -
THE FINANCIAL SERVICES AUTHORITY Respondent
Sitting in London on 18-20, 23-27 and 30-31 January 2006;
1, 13-16, 21, 22, 24, 27 and 28 February 2006; and
2, 6 and 7 March 2006
Tribunal: DR A N BRICE (Chairman)
MR C A CHAPMAN
MR J PARSLOE
The First Applicant in person
Dr Michael von Pommern-Peglow and Sir Nicholas Bonsor Bt for the Second Applicant
Tom Beazley QC, with Javan Herberg of Counsel, instructed by the Financial Services
Authority for the Respondent
© CROWN COPYRIGHT 2006
CONTENTS PARAGRAPH
Background 1
The references 3
The legislation 6
The issues 9
The evidence 10
5
10
15
20
25
30
35
40
45
50
55
The facts 16
Mr Davidson 17
Cyprotex 21
Mr Tatham 26
Mr Howe 27
Mr Davidson opens an account with City Index 30
Mr Davidson gives Mr Howe authority to trade 34
Mr Davidson makes two further payments to Mr Howe 38
City Index and spread betting 41
City Index’s counterparty –Dresdner Securities 50
The Alternative Investment Market (AIM) 54
The progress of the Cyprotex flotation 62
The Clubhaus spread bet 66
The meetings with Mr Cooke of Dresdner Kleinwort and with Credo 69
The arrangements for the Cyprotex spread bet 75
Monday 28 January 2002 The early conversations 76
Monday 28 January 2002 The legal advice 81
Tuesday 29 January 2002 The bet moves to £4 million 84
Tuesday 29 January 2002 The directors are told the placing is filled 88
Wednesday 30 January 2002 Compliance consultations 92
Thursday 31 January 2002 The bet increases to £5 million maximum 95
Friday 1 February 2002 The prospectus 98
Monday 4 February 2002 The first placing letter 102
Tuesday 5 February 2002 Mr Davidson goes to Barbados 105
Wednesday 6 February 2002 Dresdner sign the first placing letter 107
Wednesday 6 February 2002 The withdrawal of Credo 108
Thursday 7 February 2002 Dresdner sign the second placing letter 113
Friday 8 February 2002 The second placing letter sent to Mr Howe 117
Monday 11 February 2002 The Reuters Article 118
Tuesday12 February 2002 The placing agreement 121
Tuesday12 February 2002 The fina l prospectus 122
Wednesday 13 February 2002 Mr Long is told about the bet 128
Wednesday 13 February 2002 The bet is booked 129
Thursday 14 February 2002 The contract notes 130
Friday 15 February 2002 Cyprotex floated 131
Sunday 17 February 2002 Mr Davidson meets Mr Long 137
Monday 18 February 2002 The meeting in Macclesfield 138
Tuesday 19 February 2002 Mr Davidson meets Altium 141
Tuesday 19 February 2002 Dresdner seeks advice 142
Wednesday 20 February 2002 Mr Davidson’s margin is increased 147
Altium meet the lawyers 149
Gilbert Elliott become concerned 150
Mr Davidson is investigated 153
City Index investigate 155
Altium express their views 158
The views of the other placees 160
Cyprotex now 161
The views of the Takeover Panel 165
The progress of the references 167
2
PARAGRAPH
Reasons for decision - Four preliminary legal matters 173
(1) Is market abuse a criminal charge? 174
(2) What is the burden and standard of proof? 186
(3) What is the role of the Tribunal? 201
(4) Should we have considered an application of no case to answer? 205
5
10
15
20
25
30
35
40
45
50
Reasons for decision Issue 1 - Did the Applicants engage in market abuse? 211
(1) What in fact was the behaviour of Mr Davidson? 215
(a) Our view of the witnesses 219
(b) The position of Mr Howe 224
(c) Does the evidence support the case of the Authority? 225
(d) Does the evidence support the case of Mr Davidson? 247
(e) Our views 259
(2) What in fact was the behaviour of Mr Tatham? 262
(a) Did Mr Tatham know at the outset about the scheme? 263
(b) When did Mr Tatham know about the scheme? 267
(c) Did Mr Tatham assist the scheme? 271
(d) Did Mr Tatham attempt to conceal or fail to disclose? 274
(e) Did Mr Tatham fail to consult? 279
(f) Should Mr Tatham have used a manufactured trade? 283
(g) Our views 285
(3) Did the behaviour occur in relation to qualifying investments? 286
(4) Was there a false and misleading impression? 289
(a) The Code of Market Conduct 291
(b) The AIM Rrules 298
(c) The expert evidence – Mr Hinton 301
(d) The expert evidence – Mr Brown 309
(e) Two factual matters 314
(i) Did the timing of the bets mean that they could not be disclosed? 315
(ii) Was full disclosure made to Mr Long on 13 February 2002? 318
(f) Our views 321
(5) Was there a failure to observe reasonable standards of behaviour? 332
(a) The expert evidence 334
(b) Our views 338
(6) Our conclusions on issue (1) 342
Reasons for decision Issue 2- Should penalties have been imposed? 344
Reasons for decision Issue 3 - Were the amounts of the penalties appropriate? 347
Reasons for decision Issue 4 - Was Mr Tatham in breach of Principles 2 and 3? 364
Summary of decisions on all the issues 367
Decision 372
3
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