Andrew Procter, Director of Enforcement at the FSA, said:
“The FSA will not tolerate individuals abusing positions of trust for personal gain. We view the misuse of unpublished confidential information in this case as being particularly serious given the privileged position Mr Bracken occupied.“The Market Abuse Code is fundamental to protecting investors and maintaining confidence in the UK's financial system. Market users should be in no doubt that the FSA will pursue anyone who misuses confidential information to make money.”
Mr Bracken, in his role as Group Head of Communications, learned on 26 September 2002 that WMG was likely to issue a negative trading statement in the near future. Within an hour of receiving this information Mr Bracken had approached his broker placing an order to short sell 5,000 shares in WMG at 190p to settle by 10 October. WMG subsequently made an announcement at 8.15am on 27 September 2002 stating that the Company's expected profit would be at similar levels to 2001 due to difficult trading conditions. Mr Bracken, at 9.47am on the same day, then instructed his broker to buy 5,000 WMG shares at 138p to close out his short position, on which he made a profit of £2,430.
In early November 2002 Mr Bracken received the detailed figures for the Company's interim results and also learned that the CEO of WMG was to step down and a new CEO appointed shortly. On 11 November Mr Bracken again approached his broker and instructed them to short sell 3,000 WMG shares at 123p to settle by 25 November. WMG, at 7.02am on 12 November, announced its interim results for the half-year ending 30 September 2002 and also the appointment of a new CEO. The shares subsequently fell from 130p to 117.5p by the close of trading on 12 November and had fallen to a low of 105p by 21 November. Mr Bracken, at 1.51pm on 21 November, instructed his broker to close out the position with the purchase of 3,000 WMG shares at 107p, which produced a profit of £393.
In carrying out both these transactions Mr Bracken, a regular investor, was in breach of WMG's own internal rules requiring employees to seek permission before dealing in the company's shares.
Background
- The full text of the Final Notice dated 7 July 2004 is available here on our website. This includes the background to the case, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account by the RDC when setting the level of the fine.
- Financial penalties are not treated as income by the FSA. They are applied for the benefit of authorised persons (or the issuers of securities admitted to the official list) as appropriate, and so given back to the industry in subsequent years.
- WMG is a publicly listed company whose shares are traded on the LSE and are a component of the FTSE All-Share and FTSE SmallCap Indices. WMG provides executive search, selection and human resource consulting services through its offices in America, France, Germany, Hong Kong and the United Kingdom. Its head and registered office is located at 11 Hill Street, London W1J 5LG.
- Mr Bracken's employment at WMG ceased on 24 January 2003. Mr Bracken made a reference to the Financial Services and Markets Tribunal on 30 April 2004 in respect of this matter and withdrew the reference on 2 July 2004.
- The new 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
- Misleading statements and impressions
- Market distortion
The proceedings in this case relate to the first category of behaviour – misuse of information – which involves making improper use of information that other investors would regard as significant in advance of that information being announced to the market as a whole. The provision protects investment markets, such as the equity markets, that rely on the timely provision of information to all market participants on an equal basis. This is the second case to be completed under the new market abuse regime. The FSA has previously taken action against Robert Middlesmiss for a similar breach of the rules.
- 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 of consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
