On 3 September 2008, the FSA’s Director of Enforcement, Margaret Cole, gave a speech at the Cambridge symposium on economic crime. In her speech Mrs Cole discussed insider dealing and in particular focussed on what the FSA is doing in order to get the City to take insider dealing seriously and to show that it means business. Half way through her speech Mrs Cole discussed the FSA’s long term strategy for tackling insider dealing. A big part of the FSA’s strategy would be credible deterrence which would mean bringing enough cases of “the right sort” and getting the “right sort of outcomes” so that the City pays attention.
On 8 September 2008, the FSA published a press notice stating that it had sanctioned a former hedge fund manager, Steven Harrison, for market abuse. The brief facts were as follows.
On 28 September 2006, while a portfolio manager for Moore Credit Fund, Mr Harrsion was provided with inside information about the refinancing plans of Rhodia SA (Rhodia) by Credit Suisse. Mr Harrison accepted that the information he was given was inside information although he failed to recognise this at the time. Upon receipt of the information, Mr Harrison instructed a colleague to buy 2 million Rhoda 10.50% senior notes due 2010 (10.50 bonds) on that day. On 2 October 2006, Rhodia announced, as part of its refinancing programme, it would be calling in some of its more expensive debt, including the 10.50 bonds. In due course the Moore Credit Fund tendered the 10.50 bonds that had been purchased on 28 September 2006 and made a profit of approximately €44,000.
The FSA found that Mr Harrison’s conduct was not deliberate and he made no direct profit from these activities. However, the FSA considered that Mr Harrison’s behaviour amounted to market abuse and he was fined £52,500. Mr Harrison also agreed not to act as a fund manager or trader for 12 months.
This is the first case the FSA has brought concerning the credit markets and sends a message that the FSA is determined to tackle market abuse in all the markets it regulates. In the FSA press notice Mrs Cole states:
This case highlights the importance of city professionals taking care to recognise inside information when they see it and not to misuse it. Hedge fund managers and people in similar roles are often legitimately provided with inside information in the course of their business. The FSA expects people entrusted with such responsibility, in the credit markets as much as in any other regulated markets, to observe high standards of conduct and not to take advantage of their privileged access to inside information.
Nearly a year ago (October 2007) the FSA published Market Watch 24. In that edition of Market Watch the FSA discussed its visits to hedge fund managers to review the controls they had in place to mitigate the risk of market abuse. The FSA advised that they were disappointed in what they saw and that further visits would take place. The Market Watch was useful in that it set out some of the areas of control that hedge fund managers should consider to manage its risk of market abuse.
View FSA Final Notice - Steven Harrison, (PDF 72.1KB), 8 September 2008
View Hedge fund manager sanctioned by FSA for market abuse, 8 September 2008