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Mr Mohammed bought shares in Delta plc, a London Stock Exchange listed electrical and engineering services company, based on his knowledge that the company intended to sell its electrical division. Mr Mohammed became aware of this confidential information because Delta's electrical division was an audit client of PwC and Mr Mohammed worked on the company's audit.
David Mayhew, acting Director of Enforcement at the FSA said: "Mr Mohammed, as an auditor, knew he should not be dealing in Delta shares. Similarly, the market would expect an auditor not to deal in shares of an audit client. To abuse his position by essentially cheating for personal gain, is a breach of trust and undermines the integrity of the market. "
In July 2002, Mr Mohammed first became aware of the proposed sale of Delta's electrical division. He was told that this information was confidential and not to be discussed with company officials. Although Mr Mohammed began handing over the responsibility for elements of Delta's audit in September 2002, he remained on the audit team assigned to Delta throughout the period leading up to the disposal announcement. In particular Mr Mohammed remained responsible for planning staff to work on Delta and had reason to know about the sale's progress because of its impact on resource planning.
At the end of November 2002, Mr Mohammed was aware that the sale process was ongoing, and was getting close to agreement. Based on this information, he purchased 15,000 shares in Delta on 29 November 2002 at 80p each. Delta announced the disposal on 9 December 2002 and Mr Mohammed sold his shares the following day at 105p each, making a profit of £3,750.
The Tribunal held that information that the sale process was ongoing was in itself sufficiently specific and precise, even without details of the proposed deal, to amount to relevant information for the purposes of the market abuse provisions:
"Mr Mohammed knew what other market participants could only guess at, namely that Delta was in fact in the train of selling its electrical division, even if there was always the possibility that the sale might not go ahead, and uncertainty as to how, if it did, it would affect the share price."
Background
- The full text of the Tribunal's decision dated 29 March 2005 is available on the Finance and Tax Tribunals website.
- The Tribunal upheld the original decision made by the FSA's Regulatory Decisions Committee both in respect of the findings in relation to Mr Mohammed's misconduct and the level of penalty.
- The market abuse regime was first introduced by the Financial Services and Markets Act and applies to conduct on or after 1 December 2001. Under the Act the FSA has power to impose financial penalties for market abuse, which is defined as one of three types of behaviour:
- Misuse of information (previous cases include Peter Bracken, Robert Middlemiss, Michael Davies, Hutchings and Smith and David Isaacs
- Misleading statements and impressions (Shell and Bonnier and Indigo)
- Market distortion (EBG & Potts )
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve our business capability and effectiveness.
