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The Financial Services Authority (FSA) has brought its first charges of insider trading against UK individuals, this after having had the legal right to do so since 2000.
The charge is that the former General Counsel of TTP Communications, a GSM software provider, plus a colleague used inside information that Motorola, in May 2006, were about to make a £100M offer for TTP, to buy shares in the target company. They pleaded not guilty and were remanded on unconditional bail for a trial on February 19th. TTP subsequently became part of Motorola in June 2006.
Whilst the US’s Securities and Exchange Commission (SEC) has regularly been throwing the book at offenders, the FSA has spent eight years before making its first formal accusations. This is seen by many in the markets as taking the “light touch” of regulation too far and an example that London is less rigorous in its policing of the markets than many countries, including the USA. It was also noted that the case is a relatively small one and the defendants are not high profile.
However, many from the legal profession claim that the case, carrying as it does the threat of jail as opposed to fines, will act as a warning to the markets. There is also the view that this will be the first of a series of cases that the FSA has been preparing for.
Cases such as these are usually brought to first light by the FSA’s share price dealing monitoring systems. It is generally impractical for insider trading to be a criterion in the risk management of companies, especially in cases where shares are bought rather than sold. However, such cases damage the reputation of the effected companies and are strong reasons for the installation of controls on knowledge of share price sensitive information within a company.
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