The First Defendant, Da Vinci Invest Limited ("DVI"), is an English registered company which operated from a branch office in Switzerland. It carried on the business of an investment and fund manager and was regulated by VQF, a self regulating body overseen by the Swiss Federal Regulator. The Second Defendant, Da Vinci Investments Pte, was a Singaporean Company which was at the time of the application apparently dissolved, and had no assets. The Third Defendant Mineworld Limited ("Mineworld") is a company registered in the Seychelles that was owned and controlled by three individuals based in Hungary, the Fourth to Sixth Defendants, Messrs Banya, Brad and Pornye ("the Traders") who used the company as a vehicle to trade derivatives for their own account and for sharing the profits between them. The Traders had previously traded for Swift Trade, a company which had previously been found to have committed market abuse.
The market abuse was alleged to have taken place in 2010/2011 in the course of high volume trading in CFD's in relation to shares traded on the LSE when the Traders were engaged in "layering" and "spoofing". This process involves placing sufficiently large orders to purchase shares and taking advantage of the small price movements created thus producing a false impression of the demand for the particular shares and the amount of shares traded. However, the bank through which custodian services were provided required to facilitate trading filed a suspicious transaction report pursuant to S118 of FSMA and ceased to provide its services. The Traders subsequently found a replacement custodian but their activities again ceased shortly thereafter following the FCA obtaining an interim freezing injunction against the assets of the First, Second and Third Defendants.
Following the grant of the interim injunction, the Third to Sixth Defendants filed defences, witness statements and instructed experts to participate in the pre-trial process. However, shortly before the trial, the FCA were advised that the Third to Sixth Defendants did not intend to defend the trial and their defences were struck out. The FCA however proceeded with their case against all the Defendants although only DVI was represented at the trial.
The position in relation to DVI was that for the purposes of S118, it had to be determined by the rules of agency taking into account its state of mind and conduct. The FCA did not contend that the senior management of the DVI actually directed the market abuse by the Traders but simply that it was driven by a desire for profit and that it either suspected what the Traders were doing or consciously turned a blind eye/was recklessly indifferent to what was going on.
The judge however found that DVI wholly failed to take any adequate steps to ensure that market abuse was not being committed by those who acted on its behalf. Although undertakings were offered by DVI, the FCA was not content that, if accepted, these would remove the risk of repeated market abuse by those acting on behalf of DVI and therefore pressed for the imposition of an injunction and financial penalties. The Judge acceded to this request.
In the case of the Traders, the Judge found the "overwhelming evidence" demonstrated that the Traders "must have known full well what they were doing and that …what they were doing was wholly improper". Accordingly, he found that each of the Defendants engaged in market abuse and that there was a reasonable likelihood that such abuse will be repeated. In his view it was therefore appropriate to grant an injunction under S381(1)(b) of FSMA with the sanction of contempt proceedings in the event of a breach.
Financial penalties were also imposed upon the First and Fourth to Sixth Defendants pursuant to S129 of FSMA which provides that a court can impose a penalty in respect of market abuse of "such amount as it considers appropriate". The court agreed with the FCA that although it was not bound by the FCA's own detailed penalty framework, it will have regard to it and provided a starting point for the court. The court therefore ordered that penalties be payable by the Defendants in the following amounts: DVI-£1.46m; Mineworld £5m; Mr Banya and Mr Pornye £410,000; and Mr Brad £290,000.
This is the first time the court has been asked by the FCA to impose financial penalties for market abuse at the same time as seeking an injunction as previously the FCA have imposed penalties on the defendants themselves. Whether this course of action heralds a change in approach by the FCA in seeking to restrain market abuse remains to be seen.