In 2011, the Financial Services Authority (as it then was) (FSAfined Rameshkumar Goenka, a Dubai-based private investor, £6.1m for market abuse after it found that he’d arranged for a series of substantial pre-planned trades to occur in the final seconds of the LSE closing auction with the intention of increasing the closing price of certain securities. The FSA believed that Goenka had done this to artificially increase the value of certain securities, as a way of reducing the losses he was about to suffer on structured product investments that were linked to the value of the relevant securities. At the time, this regulatory action was regarded as surprising by many, either because they hadn’t realised that the FSA couldtake action against an overseas investor; or because they doubted that it ever would. Needless to say, the FSA was pleased with the results of its work.

Afterwards, the FSA brought regulatory proceedings against Tariq Carrimjee, the CEO of Somerset Asset Management LLP; and Vandana Parikh, a broker at Paul E Schweder Miller & Co, and the person to whom Carrimjee had introduced Goenka, so that Goenka could trade in securities.

In these separate proceedings:

  • The FSA found that Parikh had failed to act with due skill, care and diligence, when she engaged with and assisted “Goenka in the practicalities of auction trading despite speculating that Mr Goenka had an ulterior purpose for his interest in the auction“. In the FSA’s view, Parikh should “have been aware of the risk that Mr Goenka’s objective was artificially to position the price of the relevant securities and that [he] intended to commit market abuse. The [FSA] found that at the very least Ms Parikh should have properly challenged and made adequate enquiries, so as reasonably to satisfy herself that no such risk existed before continuing to engage with and assist Mr Goenka”.  Having reached these conclusions, in August 2013, the FSA fined Parikh £45,673,  but it decided not to withdraw her approvals. It also decided not to prohibit her from acting as a controlled function holder again in the future; and
  • The FSA alleged that Carrimjee “suspected that market manipulation was the goal of Mr Goenka and suspected that Mr Goekna held structured products which [were] related to the intended manipulation, yet he turned a blind eye to the risk of Mr Goenka’s planned market abuse and recklessly assisted his client in his attempt to acheive that goal“.  The FSA was therefore also proposing to (a) fine Mr Carrimjee £89,004, for allegedly recklessly assisting Goenka in market abuse; and (b) ban him from holding one or more controlled functions in the future.

Carrimjee contested the FSA / FCA’s allegations against him in the Upper Tribunal in September 2014.

The Upper Tribunal handed down its decision on Friday 6 March 2015. In doing so, it:

  • Found that Carrimjee had failed to act with due skill, care and diligence in failing to escalate the risk that his client, Goenka, might have been intending to engage in market manipulation, and that this risk should have been apparent to Carrimjee;
  • Did not find that Carrimjee had acted recklessly and without integrity, as the FSA, and then the FCA, had alleged;
  • Found that Carrimjee’s failings were serious enough to warrant the financial penalty the FSA / FCA had been intending to impose on him;
  • Remitted the case back to the FCA, so that it could consider the extent of any prohibition that it was appropriate to impose on Carrimjee in the light of the Tribunal’s decisions. This is the first time the Tribunal has done this, since its powers were changed in April 2013.

The FCA and Carrimjee are both entitled to appeal the Upper Tribunal’s decisions. It remains to be seen whether either party will do so. (The FCA’s press release, which is available here, is silent on the point.)