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FSA Fines Three Over Share Dealing

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

When a transaction occurred that should have aroused suspicion, the subsequent investigation by the Financial Services Authority (FSA) led to fines for three of the people involved.

The transaction involved the sale of a 13.3 per cent holding in pub chain Punch Taverns plc. This took place after the owner of a hedge fund became aware that Punch was intending to offer more shares to the market and decided to reduce the fund’s shareholding. A substantial proportion of the holding had been disposed of before the information about the offer of shares became public knowledge. When it did, the share price fell sharply.

By selling the shares when it did, the hedge fund avoided a loss of approximately £5.8 million. Although the hedge fund owner did not realise it, the information on which his decision to sell was based was ‘inside information’, and to profit from such knowledge is prohibited. The FSA fined the hedge fund and its owner a total of more than £7 million, on the basis that it was not reasonable for a professional investor not to know that the information was inside information.

The FSA then turned to the trader in the hedge fund who had carried out the trades: he was fined £130,000 for failing to make reasonable enquiries before actioning the sale order. Lastly, the FSA set its sights on the trader at the hedge fund’s investment bankers. In his case, it levied a fine of £65,000 for failing to identify and act on a suspicious trade.

Says John Keeble, Head of Corporate at DFA Law, “Although insider trading is often difficult to prove, the FSA is tenacious when it gets evidence of any wrongdoing. If you are concerned about potential conflicts of interest or the limits put on your activities because you have knowledge regarding a company or market that is not in the public domain, we can advise you.”

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