Parker v Financial Services Authority, Court of Appeal - United Kingdom Financial Services and Markets Tribunals, May 11, 2006, [2006] UKFSM FSM037

Resolution Date:May 11, 2006
Issuing Organization:United Kingdom Financial Services and Markets Tribunals
Actores:Parker v Financial Services Authority

MARKET ABUSE senior accountant employed by listed company knowledge of company s difficult relations with major customer and likely effect on turnover and profit knowledge that talks about takeover of company by larger competitor abandoned whether informed or able to conclude that profit warning to market inevitable in near future whether information relevant yes whether information generally available no whether knowledge influenced Applicant s sales of shares and spread betting in advance of announcement leading to dramatic fall in price of company s shares yes whether Applicant s conduct part of an existing strategy amounting to a safe harbour no FSMA ss 118, 119, 122, 123 COMC burden and standard of proof reference dismissed PENALTY principles to be applied in determining amount of financial penalty FSMA s 124 ENF 14 recovery of abusive profit measure of additional penal element penalty reduced to reflect true level of abusive profit but penal element substantially undisturbed THE FINANCIAL SERVICES AND MARKETS TRIBUNAL JAMES PARKER Applicant and THE FINANCIAL SERVICES AUTHORITY Respondent Tribunal: Colin Bishopp (Chairman) Sandi O Neill Nicholas Douch Sitting in public in London on 24 to 28 April, 2 to 5 May and 8 to 11 May The Applicant in person Timothy Dutton QC and George Davies, counsel, instructed by, and for, the Respondent © CROWN COPYRIGHT 2006 CONTENTS Page Introduction 1 The law relating to market abuse 3 The Financial Services and Markets Act 2000 3 The burden and standard of proof 6 Reference to the Tribunal 9 The facts 10 Pace and its business 10 Mr Parker s position within Pace 11 Pace s share option schemes 13 Pace s relations with NTL and NCM 14 Project Pluto 18 The events of 26 and 27 February 2002 19 Pace s announcements to the market 21 Pace s share dealing rules 24 Mr Parker s investment strategy 27 Mr Parker s investment advisers 32 IG Index 34 Mr Parker s actions between 27 February and 4 March 2002 35 The Pace Final Notice 38 Whether market abuse is established 39 Did Mr Parker have RINGA? 40 Was Mr Parker s behaviour based on RINGA? 44 Did Mr Parker s behaviour fall below the standard to be expected? 46 Does Mr Parker have a safe harbour? 46 The penalty 47 The power to impose a penalty 47 The Authority s published policy 48 What was the Authority s proper course? 50 The abusive profit 51 The punitive element 53 Conclusions 56 1 DECISION Introduction

  1. The Applicant, James Parker, has referred to the Tribunal a decision notice addressed to him by the Authority s Regulatory Decisions Committee ( RDC ) on 24 March 2004. The notice recorded the RDC s conclusion that Mr Parker had5 engaged in market abuse between 27 February and 4 March 2002 when dealing in and spread betting on shares in his employer, Pace Micro Technology plc ( Pace ), which was at all material times listed on the London Stock Exchange, and its decision to impose a penalty of £300,000 upon him for that conduct. Mr Parker denies that he has been guilty of market abuse and he also contends that if,10 despite his denial, he is liable to a penalty, the amount imposed by the Authority is excessive, that it has been determined by reference to an inflated perception of his profits, and that the RDC dealt with him in an unfair manner which is inconsistent with its approach to failings of Pace itself.

  2. The Authority s case, in summary, is that Mr Parker, a chartered accountant15 who was at the relevant time employed by Pace as its credit risk and treasury manager, sold holdings of shares in his and his wife s names, adjusted spread bets he had previously placed and placed new spread bets in the short interval between his learning on 27 February 2002 that a possible takeover of Pace by a much larger competitor had been abandoned and that Pace, for other reasons, was very20 likely to issue a profit warning within the next few days, and the publication of that warning early on the morning of 5 March 2002. It says that the information was not generally available, that Mr Parker relied on it, and that he did so in order to reduce or eliminate losses he would otherwise have suffered, and in order to gain by his spread betting, when (as in fact happened) the price of Pace shares fell25 substantially following the publication of the profit warning.

  3. Mr Parker agrees that the transactions identified by the Authority took place. He denies that he relied on information which was not generally available; it was, he argues, all in the public domain. Additionally, he says, he was carrying out a pre-conceived strategy of hedging shares he and his wife owned and share30 options which had been granted to him, that the transactions do not reveal any change in his strategy on and after 27 February 2002, and that in consequence he has a safe harbour. He accepts that he did profit from the fall in the share price (although, taken individually, some of his transactions led to losses) but he disputes the Authority s assessment of his abusive profit (assuming that there was35 any abuse). The transactions, and the profit or loss to which each led, are agreed; the dispute between the parties relates to the question whether there was any abuse and, if so, to the determination of the items to be included in the calculation of the abusive profit. The RDC s perception, when the penalty was imposed, was that Mr Parker s net profit amounted to £153,942, and that it should be treated as40 abusive, but in its re-re-re-amended statement of case the Authority acknowledges that this was the extent of Mr Parker s net profit in the whole of the quarter to March 2002 (which Mr Parker agrees) and advances the argument that the abusive profit may have amounted to as much as £164,617. It accepts that this figure too may not be correct; we will return later in this decision to the determination of the45 2 profit. The penalty of £300,000 was designed to recover the profit and to include an additional, purely punitive, element.

  4. Mr Parker represented himself at the hearing, while the Authority was represented by Timothy Dutton QC, leading George Davies. We had a considerable volume of documentary evidence, and heard oral evidence from5 several witnesses. We are grateful to Mr Dutton for his careful presentation of the Authority s case, and we should record too that Mr Parker, despite his lack of legal training, presented his own case with moderation and skill. His marshalling and presentation of documentary evidence was exemplary, and most helpful.

  5. We heard evidence from the following witnesses:10 Edmond Warner, an expert on spread betting, engaged by the Authority ; Anthony Dixon, Pace s company secretary; Nicholas Williams, then Pace s financial controller and Mr Parker s immediate superior;15 Jonathan Bown, also an accountant employed by Pace who reported directly to Mr Williams; Andrew Bartles and Andrew McCarthy, the joint heads of BPR Financial Management, the financial services division of a firm of chartered accountants based in Yorkshire;20 Roger Hambury, Peter Martin, Darren Sinden and Giles Wilkes, at the time relevant to this reference all employees of IG Index plc or IG Markets Limited (together, IG ); Ian Hooper, a broker employed by Redmayne Bentley, stockbrokers; Andrew Paxton, Redmayne Bentley s compliance officer;25 Ian West, then a strategic adviser employed by NTL Group, the parent of a United Kingdom subsidiary ( NTL ), at the time one of Pace s largest customers if not its largest; Stewart Kinloch and David Major, employees of a company then known as Gerling NCM NV ( NCM ), which provided trade credit30 insurance to Pace; Mr Parker; and John Rufford, a barrister employed by the Authority, who participated in the investigation. We had also the statements of Colin Hatton, another employee of NCM who was35 prevented by illness from attending the hearing, and of Steve Law and David Hacon, officers of the Authority, whose evidence was purely formal. Mr Parker had produced statements from his wife, Timothy Gill, a colleague who was also acquainted with him socially, and Maureen Roberts, Pace s credit control manager, who had reported directly to Mr Parker, but the statements were not40 agreed and none of the three witnesses gave oral evidence. 3

  6. We intend to deal first with the law relating to market abuse since the significance of much of the evidence will be difficult, and in some cases impossible, to grasp without an understanding of the legal principles. Thereafter we deal with the burden and standard of proof. We come next to the facts. In describing them we do not intend to set out the evidence of the witnesses, one5 after the other (indeed, we do not need to mention some of the witnesses by name), but instead to deal with the facts (many of which were agreed) on a topic- by-topic, rather than chronological, basis, identifying those matters of dispute which arose, describing the evidence relating to those matters, and setting out our findings. We then draw the law and the facts together in our consideration of Mr10 Parker s conduct and of the allegation that it amounted to market abuse. Finally we deal with the law, code of conduct and practice relevant to the imposition of a penalty, and address the amount of the penalty which it is appropriate to impose in this case, if market abuse is established. The law relating to market abuse15 The Financial Services and Markets Act 2000

  7. The starting point for identifying the meaning of the term market abuse , and the various matters we must bear in mind when deciding whether Mr Parker is guilty of it in relation to any of his transactions, is section 118 of the Financial Services and Markets Act 2000 ( the FSMA ). The section was amended20 substantially in 2005, to reflect a European Directive, but the amendment has no retrospective effect. At the material time it read: (1) For the purposes of this Act, market abuse is behaviour (whether by one person alone or by two or more persons...

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