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The Financial Services Authority (FSA) has today fined Roberto Casoni, a former equities analyst, £52,500 for failing to observe proper standards of market conduct while carrying out his role as an Approved Person. This was in breach of Principle 3 of the FSA's Statement of Principles for Approved Persons.
Mr Casoni was a research analyst for Citigroup's Global Equity Research (Citigroup) in London, where he was head of the Italian small-mid cap team whose areas of coverage included the Italian leasing sector. On 9 January 2006 Mr Casoni began the approval process for Citigroup to initiate coverage on the Italian leasing and factoring bank, Banca Italease (BI). However prior to its publication, Mr Casoni selectively disclosed details of his valuation methodology, final recommendation and the target price. In one case he also told a client the expected date of publication. Citigroup published its research, containing a buy recommendation with a target price of €39 per share (BI's price at the time was €25.70), at 17.40 on 23 January.
Mr Casoni by disclosing this information after he had formed an opinion about BI and had initiated Citigroup's internal approval procedure failed to observe proper standards of market conduct. Citigroup brought the matter to the FSA's attention.
Margaret Cole, FSA Director of Enforcement, said:
"The FSA expects all individuals, in particular approved persons, involved in the production of research for publication to the markets to act properly to ensure the fair distribution of that research. This is fundamental to the maintenance of clean and orderly markets "Mr Casoni failed to observe proper standards of market conduct by deliberately disclosing his valuation methodology, his recommendation and target price to external parties prior to its publication. By doing so Mr Casoni allowed the recipients the opportunity to pre-empt the conclusions of the published research ahead of the rest of the market."
Mr Casoni's Conduct
During late 2005 Mr Casoni became interested in BI and by January 2006 was considering using a different method to that normally used to value companies in the Italian leasing sector to value BI.
On 9 January Mr Casoni began the internal Citigroup process of arranging for Citigroup's Stock Steering Committee (SSC) to consider his publication of research on BI with an intended publication date of 20 January. His draft report showing a target price of €35 was circulated to the SSC on 18 January and at a meeting at 10.00am on Friday 20 January was cleared for publication. Citigroup initiated coverage on BI on Monday 23 January at 17.40 with a buy recommendation, with medium risk and a target price of €39 per share; it had been trading at €25.70.
In the period between beginning the process for gaining approval for his research and its publication, Mr Casoni was in contact with a number of clients about different elements of his research:
- 12 January he emailed a fund manager at Firm B, who held a large position in BI stock, saying "Itaplease a bomb". This contact continued and included Mr Casoni inviting him to consider his model for BI and discussed his valuation methodology with the client on 16 January and later meeting with and showing the client a copy of his research on 20 January following its approval that morning;
- 13 January he contacted one fund manager client at Firm A by email discussing some of his analysis and followed this up with an email on 23 January, following approval of his research, but ahead of publication, saying that "Banca Italease is still a strong buy, I initiate tomorrow with a +50 pc upside;
- 13 January he emailed a draft spreadsheet of the valuation model for BI to a fund manager at Firm C who was knowledgeable about BI and they compared valuation models;
- On 16 January emailed the draft spreadsheet to a fund manager at Firm D, this contained a valuation and his valuation methodology.
Mr Casoni by engaging in these contacts initially revealed the methodology underpinning his research; the intention to initiate coverage on Citigroup's part, and then subsequently the timing of that coverage to parties who realised that coverage was imminent and who may have been in a position to take advantage of this information. None of the recipients of Mr Casoni's information traded in the shares of BI as a result of having received it.
In reaching its decision, the FSA has taken into account the fact that Mr Casoni did not have any intention of manipulating BI's share price in making these disclosures nor did he obtain any financial gain from his misconduct. Mr Casoni has co-operated fully with the FSA and has agreed to settle this matter at an early stage of the investigation thereby receiving a 30% discount on the amount of his fine, reduced from £75,000 to £52,500. He has not previously been the subject of FSA disciplinary action.
