The City watchdog’s aggressive campaign to crack down on market abuse hit new heights in 2012, with the imposition of the longest jail sentence for insider dealing and the biggest UK civil fines for trading ahead of a deal.
The record fines and jail term came in two separate cases, but both were part of the Financial Services Authority’s effort to provide “credible deterrence” and reduce the prevalence of suspicious trading ahead of mergers and other market moving news.
But the campaign will face a key test a few months after the FSA hands responsibility for enforcement to the new Financial Conduct Authority in April, when Ian Hannam, the former JPMorgan Cazenove banker, challenges one of last year’s most controversial civil enforcement decisions.
The watchdog wants to fine Mr Hannam £450,000 for allegedly disclosing inside information about Heritage Oil to a prospective client. But an outside tribunal has scheduled a hearing in July to consider Mr Hannam’s claim that the information was not material and that he was acting at the behest of Heritage.
The FSA issued 11 total decisions involving civil market abuse in 2012. David Einhorn and his Greenlight Capital hedge fund paid a combined £7.2m for selling Punch Taverns shares before the group’s 2009 rights issue. Three other people including Greenlight’s UK compliance officer were also fined in connection with the case.
“It would appear that the FSA has much lower tolerance levels than in the past given the string of 2012 cases, with fines for bankers merely disclosing confidential inside information even where that information was not traded on,” said Angela Hayes, partner at Mayer Brown, the law firm.
The FSA also secured 10 criminal convictions for insider dealing – the most ever – and a four year jail term for James Sanders, who ran Blue Index, a specialist brokerage. The watchdog also laid new criminal charges against five people in its biggest ever insider dealing probe, known as “Operation Tabernula”. The defendants have not formally entered pleas and are scheduled to stand for trial in 2014.