On January 11, the UK Financial Services Authority (FSA) announced that a former research analyst and his friend have been found to have committed market abuse by using inside information to carry out a series of profitable spread bets.
During the summer of 2004, Mr. Chhabra was a research analyst at Evolution Securities Limited, a stockbroker. His friend, Mr. Patel, was an experienced spread better who regularly placed bets on FTSE indices. Following a thorough investigation into the activities of the two friends, both of whom were FSA Approved Persons, the FSA found that on three separate occasions Mr. Chhabra had become aware of important confidential information relating to listed companies. Mr. Chhabra had then contacted Mr. Patel, often within minutes of receiving the information, and shortly afterwards Mr. Patel had placed bets on the stocks of the listed companies concerned. The total benefit to Mr. Patel was found to be £85,541 (approximately $139,160).
The FSA found that they had committed market abuse and proposed to ban and fine them both. The pair referred the FSA’s findings to the Financial Services and Markets Tribunal (FSMT). The FSMT is the independent judicial body which hears references from the FSA’s decision notices regarding regulatory or disciplinary matters. Any firm or individual to whom an FSA decision notice is directed has the right to refer the matter to the FSMT, and the FSMT then determines what is the appropriate action for the FSA to take.
The FSMT confirmed the FSA’s findings of market abuse. A separate hearing will take place to confirm the appropriate action to take against Mr. Chhabra and Mr. Patel.
To read the decision in full, click here.