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£8 million market abuse fine imposed by FSA upheld on appeal

An £8 million fine for market abuse imposed on a now-defunct Canadian trading firm has been upheld on appeal. The Upper Tribunal described Swift Trade’s conduct as, “as serious a case of market abuse of its kind as might be imagined”.

It is the largest fine the Financial Services Authority (FSA) has ever issued against a firm for market manipulation.


The case relates to a system of manipulative trading known as “layering”, which the FSA believes was used by the company over the course of a year, from early January 2007.

Layering occurs where orders are placed in order to artificially affect the stock price. On this occasion, large orders were placed for certain shares on the London Stock Exchange (LSE), followed by a trade on the opposite side of the order book, to take advantage of the share price movement caused by the initial placements.

Both the original large orders and the follow up trades were then deleted.

According to the FSA, the manipulative trading caused a succession of small price movements in a wide range of individual shares, and garnered substantial profits for the company. It led to a false or misleading impression of supply and demand and an artificial share price in the shares traded - to the detriment of other market participants.

FSA action

Swift Trade was voluntary dissolved in December 2010, after changing its name to 7722656 Canada Inc, and transferring its assets to a former holding company. Despite this, the FSA published its decision notice against Swift Trade in August 2011, and proceedings are continuing.

Swift Trade appealed the decision notice, arguing, among other things, that “the activity about which the Authority complains was not manipulative, but legitimate high volume day trading.”

The Upper Tribunal did not agree. It found that the FSA had proved its case that Swift Trade had engaged in layering activity which constituted market abuse.

What is market abuse?

In very general terms, the types of behaviour and situations covered by market abuse include:

  • dealing or attempting to deal with an investment on the basis of inside information about that investment;
  • disclosing inside information to someone else other than in the proper exercise of employment;
  • using information which is not generally available but which, if it were, would be considered relevant in determining the basis on which transactions would be made;
  • transacting in such a way that is likely to give a false or misleading impression as to price, supply or demand or that secures an abnormal or artificial price for the investment; and
  • using deception or fictitious devices in effecting transactions.

According to the Upper Tribunal, “the graphs, the other material we saw and the evidence we have outlined lead compellingly to the conclusion that the trading we have described was deliberate, manipulative, designed to deceive other market users, successful in that aim, and undertaken for motives of profit.”

It was therefore market abuse.

Cynical case

“This was a particularly cynical case where a business model was based on market abuse,” said Tracey McDermott, FSA director of enforcement and financial crime.

“The approach taken by Swift Trade was novel and complex, designed to allow them to benefit at the expense of other market users, and to make detection more difficult. The FSA is committed to taking whatever steps are necessary to protect the integrity of our markets whatever the techniques used and wherever the perpetrators are located,” she said.

Contact our FSA Defence Solicitors

For specialist legal advice and criminal defence representation against FSA prosecution or investigation, please contact Jeffrey Lewis or Siobhain Egan on 020 7387 2032.

*This blog is intended as a news item only. No connection between Lewis Nedas Law and parties to the case is implied.

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Property fraud on the increase.

Largely because of the booming buy to let sector, property fraud, where the rights of the owner are usurped and the property is either fraudulently sold or mortgaged, has increased enormously.

As a result the LAND REGISTRY have launched a property fraud reporting hotline (0300 006 7030) , and a new property RESTRICTION service.

These frauds usually involve empty, mortgage free or rented properties with absent owners.

These frauds are already prevalent and are likely to increase, and the average indemnity payout is £150,000 in these situations.

The new RESTRICTION will be free to absent owners but owner occupiers will pay a fee, the restriction which has been in force since February 2012 has successfully protected 5, 000 properties so far. It is an absolute requirement of the restriction that solicitor certifies that the person selling/re-mortgaging the property is the bona fide owner.

Contact Richard McConell or Janak Bakrania for advice.

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The CDF - a Sheep in Wolf's Clothing? – by Siobhain Egan

So, you have received a CDF letter from HMRC. After the panic has subsided, what should you do?

HMRC launched the Contractual Disclosure Facility (CDF) on 31 January 2012; it appears to be a new departure for HMRC as far as tax fraud is concerned. It is certainly a move away from the "pay up and we will say no more about it" approach of the recent past, which probably means that the relatively "softly softly" approach wasn't working, or not working quickly enough.

The CDF applies to all code of practice 9 investigations, and essentially, HMRC will write to any tax payer they suspect of tax fraud, without supplying any of the "evidence" that allegedly supports their suspicions. This is an important point, more of which later. The tax payer has 60 days in which to respond to the letter and to decide what s/he wants to do.

The tax payer has 3 options:

  1. To disclose all tax fraud;
  2. To deny, but co-operate with HMRC;
  3. Not co-operate at all (and possibly run the risk of a prosecution).

If you have received a CDF letter, contact both a specialist lawyer (such as Jeffrey Lewis or Siobhain Egan) and a specialist tax accountant (we work with leading tax accountants throughout the UK).

You have decided to make a full confession to HRMC and there are now two stages for you to complete:

  1. Make an outline of the disclosure (again ensuring that you take specialist advice first);
  2. Sign a certified statement, giving all relevant details in a full and frank manner. Essentially, you should come to HMRC with "clean hands".

You will be protected from prosecution in relation to all issues disclosed, but NOT from any issues omitted; again, this is why it’s important to take specialist advice throughout this process.

So what are the chances that you would be prosecuted for non-cooperation? There is certainly a higher chance of this now than there was in the past, and doubtless you will have read of the many millions the Government has given HMRC to pursue tax fraudsters and the 100 additional inspectors now assigned to the "affluent” unit. You will also have read of the DPP's recent promise to increase tax prosecutions 5x over the next 2-3 years (providing he gets the money from the Government to do it).

However, these prosecutions are time consuming, costly and uncertain, and would require HMRC to disclose the evidence which they allegedly had supporting their original suspicions to the requisite criminal standard of proof. The latter may cause some difficulties for HMRC who are protective of their sources of information.

We are not at all convinced that there will be a sudden surge of HMRC prosecutions but we are certain that a lengthy, drawn out and aggressive tax inquiry is not something that anyone would relish!

Contact Jeffrey Lewis or Siobhain Egan.

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Latest Legal Issues for Motorists 2013 - Update from Our Motoring Defence Lawyers

The following are some of the latest issues for motorists to note in 2013.

  1. Any driver who is found to be short sighted likely to be refused permission to drive within hours of decision;
  2. New curbs on foreign licences;
  3. Foreign drivers could be banned from using interpreters to assist when taking driving tests; and
  4. Various local authorities up and down the country considering imposing 20mph limit.

Contact Jeffrey Lewis in our motoring defence law team for advice on the above.

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Important Money Laundering Update: New 4th EU AML Directive Announced

A new 4th EU AML Directive has been announced. This new directive concerns the following:

  • identify beneficial owner of companies;
  • more information accompanying fund transfers;
  • clear mechanisms for identifying beneficiaries who would previously have been anonymous;
  • expanding provisions for dealing with PEPs (politically exposed persons) in Europe;
  • provisions governing the entire gambling sector and not just casinos; and
  • calls for greater co-operation between national financial intelligence units.

This new directive has to be formerly ratified but is very important for AML compliance.

Contact Siobhain Egan for further advice.

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