FSA findings of market abuse upheld

The Financial Services and Markets Tribunal (FSMT) published a decision on 11 January 2010 which upheld findings made by the Financial Services Authority (FSA) on market abuse by a research analyst and a serial spread better.

Background

On 3 occasions in the summer of 2004 Mr Patel placed a series of spread bets on listed companies. The FSA claimed that Mr Patel was only able to place such bets on the basis of restricted information provided to him by Mr Chhabra, as the relevant information was not generally available to the public.

At the time the bets were placed, Mr Chhabra was a research analyst at Evolution Securities Limited, covering Ebookers plc and Eidos plc. Mr Patel was his friend and an experienced spread better. Mr Chhabra became aware of restricted information relating to Ebookers plc and Eidos plc and he passed it on to Mr Patel. Mr Patel placed bets on these companies shortly after receiving such information. Mr Patel profited to the sum of £85,541 from the bets.

FSA decision

In November 2008 the FSA issued a Decision Notice on Mr Chhabra and Mr Patel notifying them that the FSA had decided to impose penalties on them for market abuse. The FSA also prohibited them from performing functions in relation to any regulated activities. Both Mr Patel and Mr Chhabra denied that they had engaged in market abuse and referred the Decision Notice to the FSMT.

FSMT decision

Mr Chhabra admitted to the FSMT that, with hindsight, it could appear suspicious to communicate with a third party while in possession of restricted information but argued that this was not evidence of wrong-doing. However, after having considered the evidence as a whole, the FSMT upheld the FSA’s findings that Mr Patel’s bets had been placed on the basis of the restricted information passed to him by Mr Chhabra. Both Mr Chhabra and Mr Patel had therefore engaged in market abuse. A separate FSMT hearing will consider whether the penalties and prohibition imposed by the FSA are appropriate.

Comment

In its decision the FSMT explicitly stated that it regards allegations of market abuse as serious allegations. This decision shows that market abuse will not be tolerated by the FSA or the FSMT and should serve as a warning to anyone in a similar position to Mr Chhabra or Mr Patel who is tempted to engage in abusive practices.

Robin Chhabra and Sameer Patel and FSA