The Financial Conduct Authority (FCA) has published a final notice issued to the former CEO of Worldspreads Limited and its holding company, Worldspreads Group plc, for behaviour contrary to sections 118(5) (manipulating transactions), (6) (manipulating devices) and (7) (dissemination) of the Financial Services and Markets Act 2000 (FSMA). These provisions governed market abuse at the time the offences to place, prior to the introduction of the Market Abuse Regulation in 2016.
Mr Conor Foley, the ex-CEO of WorldSpreads Limited (WSL), and its holding company WorldSpreads Group plc (WSG), was involved in drafting admission documentation ahead of WSG's flotation on AIM in August 2007. The documents contained misleading information and omitted key information that investors would have needed to make an informed decision about the company. In particular, the documentation did not mention that some WSG executives had made significant loans to WSG and its subsidiaries. This was also never disclosed in the annual company accounts. The documents also did not mention an internal hedging strategy by which certain of WSG's subsidiaries hedged considerable trading exposures internally with company executives.
The FCA found that Mr Foley engaged in market abuse contrary to sections 118(5)(a) and (6) of FSMA because:
- The purpose of the spread-bets was to create artificial liquidity in WSG shares that would not otherwise have existed.
- The transactions purported to be effected by clients trading independently and at arm's-length from WSG. In fact, they were effected by Mr Foley.
- Under the AIM Rules for Companies, WSG was required to notify when a director (or significant shareholder) dealt in its shares. By using the client accounts to effect the transactions, Mr Foley sought to avoid his obligations to disclose his dealings to WSG. This prevented WSG's compliance with its notification requirements. Investors (or potential investors) who would reasonably have expected to have proper and full information about such trading were left uninformed.
Following this finding of market abuse, the FCA originally imposed a financial penalty of £658,900. However, because the former CEO provided verifiable evidence that the imposition of a financial penalty of any amount would cause him serious financial hardship, the FCA imposed a public censure pursuant to section 123(3) of FSMA in lieu of the fine together with the prohibition order, under section 56 of FSMA.
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