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Offenses under Market Abuse Regulation (MAR) with a Focus on Insider Dealing

Question 2. Whether Mike has committed any offence contrary to the Criminal Justice Act 1993. Mike has committed a market abuse offence which is in contradiction to the Market Abuse Regulation(MAR). The practice of misusing information for reaping unfair benefits as an investor or to put the financial market in a disadvantageous position, is known as Market Abuse. The three major ways in which this can be done are- through insider dealing; by means of unlawful revelation of inside information or by means of trying to manipulate the market. Market Abuse Regulation prohibits insider dealing which is the action of trying to gather and utilize inside information by means of which one can make, change or cancel deals or motivate a third party to make deals with the help of the information. MAR lays out that insider dealing not only includes the implementation of trades but also the amendment and cancellation of orders based on that. MAR prohibits people who have access to inside information from its disclosure to motivate a third party to place, amend or cancel certain deals. Revelation of insider information is unlawful which is exactly what Mike does. Part V of the CJA 1993 replaced the Company Securities (insider dealing) Act 1985’s twelve specific offences into three clear-cut and well defined offences. The first of which is dealing while having the possession of inside information ; the second offence mentions encouraging someone else to deal with such information; and the third being the revelation of this inside information other than in their professional capacity. Mike is culpable under all of the three sections as he bought shares in Wheeler plc while he possessed the information that Wheeler plc might be bought by Rafferty plc. He disclosed this information to his friend Harvey which was outside his professional dealings and also encouraged Harvey to buy shares in Wheeler plc since it will reap them both financial benefits. The CJA 1993 stands for the principles of confidentiality and trust to make sure that the public confidence is retained in the integrity of the markets.

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Protection under Part V of Criminal Justice Act 1993, which can be committed by an individual under Section 52, specifically mentions that if an insider motivates some other person to invest in such securities, having knowledge of or having reasonable cause to believe that the other person would do so, that person would be deemed as guilty. In the given case Mike shared the information with his friend Harvey that an investment in Rafferty plc could be advantageous and he was planning to buy some shares. After getting this information Harvey also purchased certain shares which reaped them immense benefits in the market. According to the CJA 1993 as a penalty Mike can be sentenced upto seven years imprisonment and can also be fired. According to Lord Justice, in the case of R versus McQuoid : “Those who involve themselves in insider trading are animals: no more and no less”. On the basis of Section 56(1) of CJA 1993 “inside information” has been elaborated as an information which: Relates to particular securities or to a particular issuer(s) and not to securities or issuers of securities generally; Deals with a specific and to the point issue; something which has not been shared with the public.; If it has been made public, it is likely to have a important effect on the price of any securities.. Insider dealing has been found offensive by the legal structure of UK since 1980 and insider dealing is just another form of market abuse. For the past few years the record in Insider dealing has been good. It is James Sanders of Blue Index in 2012 who has served the maximum sentence that any individual has received. The Serious Fraud Office UK (SFO) has also prosecuted with success cases of insider trading under the Fraud Act 2006. In 2009, the FSA, changed its strategy to combat market abuse and insider trading through ‘credible deterrence’. This plan of action has shown positive results since its duel ‘civil-criminal regime ’successfully prosecuted 26 cases between 2009 and 2015. 2012 has been the most successful year, with eleven criminal convictions. Also, the FSMA 2000 has been revised in 2005, 2011 and 2014 to issue the concern of market abuse, of which insider trading is a part.

Whether Mike committed any market abuse offences contrary to the Market Abuse Regulations. Market Abuse refers to actions by the ones who are involved in the market to gain an unfair advantage over other investors. Market abuse is a form of insider dealing. UK MAR has an aim to increase market integrity and investor protection, by means of enhancing the attractiveness of securities markets for the purpose of raising capitals. It contains prohibitions of insider dealing, unlawful disclosure of inside information and market manipulation in addition with provisions to prevent and detect these. The financial crisis of 2007-09 resulted in making insider dealing, a matter of public apprehension and interest. A raid was carried out at dawn in sixteen addresses in the London area and and it involved 143 officers from the Financial Services Authority (FSA) and others who came from Serious Organized Crime Agency (SOCA). This took place in March 2010. However, even despite this there had been little or no interest in the UK about the insider dealing or market abuse by criminologists. The Financial Services and Market Act (FSMA) 2000, states under Section 119, that the FSA is the main regulator in UK and they should be producing a Code of Market Conduct. This code indentifies the behavior which amounts to Market abuse. Based on the terms of what the FSA calls “principles-based regulation”, which involves a set of structured principles and rules laid down in details, resulting in various systems and controls that listed many companies and advisory firms to use and apply. Through this, the FSA strives to make sure that inside information is managed properly so that leaks can be prevented. Market Abuse has been regarded as a criminal offence under Section 397 of FSMA, which categorizes it to be an offence for a person to (i) make a statement, make commitments or reveal information which he knows to be misleading, false or deceptive or (ii) dishonestly hide any material facts when it is in connection with a statement, promise or (iii) impulsively make (dishonestly or otherwise) a statement, promise or forecast information which is misleading, false or deceptive. In the given case Mike has committed a Market Abuse Offence by revealing the information to his friend Harvey that he has advised Rafferty plc on the purchase of Wheeler plc. Mike informed Harvey that buying shares in Wheeler plc will reap them a lot of financial benefits. Post this, both of them invested in shares in the Wheeler plc and made a lot of money. Criminal Justice Act 1993 clearly prohibits a person on flashing inside information from an inside source. So Mike has committed a civil offence under CJA 1993 which contains criminal liability for insider trading. By revealing this vital information he committed market abuse by means of an unlawful disclosure which in this case has amounted to market manipulation. If the FSA is sure that a person has engaged in, insider trading, or has required or encouraged another individual to do so, it has the power to assess an unlimited civil fine. The FSA can also issue a public announcement or revelation that the individual has engaged in insider trading or require the payment of reimbursement to victims of insider trading. Mike is culpable under CJA 1993 and has made a criminal offence by trading information too his friend Harvey. A similar concept of market abuse also exists under EU MAR, which was applied in the UK before the end of the Brexit transition. Whether Harvey has committed any offence contrary to the Bribery Act 2010. The UK Bribery Act 2010 which came in replacement of the previous Bribery laws in UK provides with an elaborate description of bribery under which all private sector transactions fall. Prior to this, the bribery offences were restricted to transactions which involved public officials along with their agents. There are four separate offences to which the UKBA applies:

A general offence of offering, committing or giving a bribe

A general offence of requesting, conceding to accept or accepting a bribe

A specific offence of bribing a foreign public official in order to obtain or hold on to the business

A new stringent liability offence in case commercial organizations fail to keep bribery at check, by those acting on their behalf (their associated persons), where the bribery was intended to obtain or retain a business advantage for the commercial organization

Harvey is culpable under Section 1 of UKBA 2010 because after gathering the inside details of the share market and reaping financial benefits by investing in the shares of Wheeler plc (which he ultimately sold and earned profit), he offered Mike to use his holiday villa in Canada, along with his family, in exchange of which he expected further inside information like this. This act of Harvey falls under private commercial bribery which clearly lays out that it is an offence for a person to present or offer, commit or give a “financial or other advantage” in case the bribe payer intends to gather benefits by bringing about of a related function or authority, by another person or to reward such fraudulent activity.”Financial or other advantage” has not been properly defined in UKBA. The villa offered by Harvey to Mike falls under the category of non-monetary gifts. The offence committed by Mike can lead him to a sentence of imprisonment of ten years. In a similar offence like the one committed by Harvey, a holding company admitted of not being able to prevent an associated person bribing on its behalf. It is wholly-owned Cypriot subsidiary (the ‘associated person’) bribed an overseas business person (without the holding company knowing) in hopes of winning a major contract that was worth £1.6m to the subsidiary. It was done by making payments to him for consultancy services via sham companies. The holding company later discovered the bribery and reported it to the Serious Fraud Office (one of the UK bodies responsible for enforcing UK bribery laws), and was fined £2.35m. Whilst the holding company had an anti-bribery statement, an ethics policy and online training (all of which applied to the subsidiary), it confessed that these did not amount to ‘adequate procedures’. The amount of the fine revealed the fact that the bribery had gone on for more than a year, and the holding company had failed to update its internal governance ever since the bribery laws came into force. There was also proof of a failure to co-operate fully with the SFO investigation. Whether Harvey has committed any fraud offence based on his advice to Samantha.

Harvey, by misguiding Samantha, who asked him for investment advice, has committed fraudulent activity. Harvey is culpable under market abuse. Harvey asked Samantha to invest in Zane plc, a small hardware company owned by Harvey himself. He concealed the information that in the past six months the company had shown significant problems with its products and was even about to issue a profits warning. Harvey took undue and unfair advantage of Samantha (who was looking for accurate investment advice) by deluding her, and creating a misleading information about the economic value of the company and therefore a false market in the shares. Harvey might have done it to stir up Samantha’s interest in his company which has not been performing well. By doing so he tried to force the price up. This is termed as market abuse because Harvey, through this action of his, tried to distort and undermine the market, which can cause serious damaging impact on the interest of its participant, which, in this case, is Samantha. Investors are furnished with authentic and trusted information so that they take more interest in investment and savings. If accurate information is provided, only then they will gear up for investing thereby providing the businesses with essential funds and money being channeled into worthy areas.The law and regulations of the UK stock market lays out that not should the market be fair but also it must appear to be fair, for the purpose of encouraging investment. No one should be in an disadvantageous position because of their investment. Though individuals who make correct decisions in terms of investment should be awarded, they should not have an advantageous position through a privileged access to inside information nor should they have the ability to manipulate financial information by misleading others, which ultimately adds up to their benefit. This is exactly the fraudulent crime committed by Harvey. The main reason for these offences to be regarded as crimes is for the purpose of safeguarding the efficient workings of financial markets and to motivate investment and savings. They are also considered as crimes against the society as well as individuals, which is morally wrong and unethical. Insider dealing is considered as an offence under Criminal Justice Act (CJA) 1993. A common form of insider dealing is when an insider has the information that a company is not performing well and is about to issue a profit warning (a public statement that it would not be able to earn the profits which it once forecasted) and that, as a result of this the share price will fall once the announcement is made. The insider, which in this case is Harvey, is manipulating the investor (Samantha) by providing misleading information about the market. A similar case took place in 2004, where a city professional, Aasif Butt was declared guilty of using secret information of clients over a period of almost four years. Having access to highly confidential inside information that was price sensitive which was related to the status and performance of certain companies which the bank were advising, Mr. Butt leaked the information to his friends outside the bank, Ian Beale, Alexander Coleman, Richard Judson and Daniel Masters who either bought shares or placed spread bets of up to £600,000 before important financial announcements were made. Post the revision of UK legislation, it is the responsibility of the UK authorities to investigate people who were associated with market abuse. Order Now Whether Harvey has committed any primary money laundering offences. Section 2 of Prohibition and Prevention of Money Laundering Act 2001 provides the definition of money laundering as including “(a) engaging, directly or indirectly, in a business transaction that involves property acquired with proceeds of crime; (b) receiving, possessing, concealing, disguising, disposing of or bringing any property derived or realized directly or indirectly from illegal activity; or (c) the retention or acquisition of property knowing that the property is derived or realized, directly or indirectly from illegal activity.” This elaborate definition of money laundering does not apply to Harvey. Harvey is culpable under the Securities Act which mentions that it is a criminal offence to “induce or attempt to induce another person to deal in securities through misleading, false or deceptive information”. In case of Samantha, Harvey through concealment about the weak performance of his company, misled Samantha. This constitutes as a criminal offence. According to the Uk’s Economic Crime Plan 2019-22, the range of money laundering is vast. The National Crime Agency (NCA)’s National Strategic Assessment 2019, it is estimated that serious and organized crime costs the UK economy at least £27 billion each year and there are around 2,542 known organized crime groups which operate in the UK. The UK law money laundering has been defined in Proceeds of Crimes Act 2002 (POCA) ranges from all forms of handling or possession of criminal property, which includes the proceeds of one’s own crime as well as facilitating any handling or possession of any criminal property. Harvey has committed an offence which falls under the Fraud Act 2006. Section 2 of the Fraud Act explains Fraud by false representation as revealing an information which is misleading in spite of the person knowing that this might be the case. Thus Harvey is culpable under Section 2 of the Fraud Act. Harvey is also culpable under Section 4 of the Fraud Act because he abused his position as the partner of one of the largest hedge funds in the city of London as well as an owner of a company. He occupies a position in which he is expected to safeguard or not act against the financial interests of another person. Through his act of concealment of important information about his company, Harvey has acted dishonestly to secure a gain for himself and loss for someone else (Samantha). Harvey is also culpable under Section 1 of UKBA 2010 because after gathering the inside details of the share market and reaping financial benefits by investing in the shares of Wheeler plc (which he ultimately sold and earned profit), he offered Mike to use his holiday villa in Canada, along with his family, in exchange of which he expected further inside information like this. This act of Harvey falls under the common law offence of bribery or accepting a bribe (which in this case is the villa of Mike, in Canada). The POCA provides the legislative framework for granting of restraint and confiscation orders in UK criminal proceedings. It is clear from the passage that Harvey has committed other fraudulent activities but not laundered money.

Journals/ Articles
  • Kirk, D. Enforcement of criminal sanctions for market abuse: practicalities, problem solving and pitfalls. (ERA Forum 17, 311–322 (2016)). https://doi.org/10.1007/s12027-016-0438-z
  • Hardy Stephen, Butler Mark Insider Dealing- The New Law: Part V of the Criminal Justice Act 1993 (Sage Publications Ltd, 2007) https://www.researchgate.net/publication/332471778_CJA_1993_Part_V_Addresses_Criminal_Liability_of_Insider_Dealing
  • David N. Kirk , “Going Inside for insider trading” https://www.mondaq.com/uk/white-collar-crime-anti-corruption-fraud/398978/going-inside-for-insider-trading

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