Jul 07 2006 Alex Davidson
Paul "The Plumber" Davidson's successful appeal against the Financial Services Authority's £750,000 fine for alleged market abuse makes it difficult for the regulator to take effective action against market manipulation, according to Martyn Hopper, partner at Herbert Smith. Hopper told Complinet that he had been involved in the Davidson case when he previously worked at the FSA.
The tribunal decided that the FSA had failed to prove its case on facts, which was understandable to some extent, Hopper said. The tribunal went on to say — and it did not have to — what its interpretation of the Market Abuse Directive would have been if it had found in favour of the FSA, he noted.
The tribunal found that the spread betting scheme entered into by Davidson's broker did give rise to a false and misleading impression in the marketplace, according to Hopper. It decided that even if Davidson had been compliant in the scheme, which he was not, he would not have been guilty of market abuse because there was no obligation on him to disclose the false and misleading scheme, Hopper noted.
"The interpretation is very problematic, for the FSA and for all of us. The legal decision of the tribunal can only make it harder for the FSA to bring home market manipulation [convictions]," Hopper said.
The result raises serious doubts as to whether the tribunal understands the purpose of the regime, Hopper said. "It suggests the only obligation for us is to enforce the existing disclosure regime, and this cannot be what parliament suggested."
He added: "I have long wondered if the market abuse regime is really understandable and accessible to those who apply it. It has a lot of complexity and scope for people to tie themselves up in knots," he said.
The FSA's response to the Davidson decision was to say it remained bold, resolute and committed to tackling market abuse, Hopper noted. The regulator last year took the unusual step of publishing research on insider dealing and market abuse. It said that it was measuring its performance not by how many enforcement actions it took but by the impact of the new regime on the market, he said.
The views and the opinions expressed in 'hot topics' are that of the individual authors and not necessarily those of the Securities & Investment Institute.
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