£1m FSA Fine Hits Manchester Man with First High Court Injunction for Market Abuse
For the first time in its new penalties system, the Financial Services Authority (FSA) has fined an individual £1 million for “share-ramping” and has secured the first final High Court injunction to prevent market abuse.
Samuel Kahn, from Salford, Manchester, allegedly orchestrated a scheme to deliberately inflate the share price of Global Brands Licensing plc (GBL), a company quoted on PLUS Stock Exchange, a Recognised Investment Exchange, between March 24 and April 30, 2010.
Kahn impersonated other people when placing orders to trade in GBL’s shares so he could control the vast portion of trading in March and April 2010. He also coordinated the trading conducted by third parties, the FSA claimed.
It was on March 24, 2010 when GBL was admitted to PLUS. On April 30, 2010, PLUS suspended GBL’s shares. Eventually, its shares were withdrawn from PLUS on December 24 last year.
The FSA alleged that GBL’s share price rose from 2 percent on March 24, 2010 to 5.25 percent at its height on April 20, 2010 following the rogue trading.
According to the final notice addressed to Kahn, a third party’s bank account was used to withdraw the profits from this trading, which were then delivered to him in cash as per instruction of Kahn.
Tracey McDermott, acting director of enforcement and financial crime, said Kahn manipulated 85 percent of the buy trades and 91 percent of the sell trades of GBL “for his own financial benefit as well as to facilitate tax relief fraud and boiler room activities” as part of his “month-long campaign of market abuse.”
The scheme was only halted following the suspension of GBL’s shares on PLUS, McDermott added.
”The FSA views Kahn’s conduct as particularly serious due to his prior misconduct and previous action taken against him by the FSA,” McDermott said.
On February 2007, the FSA has obtained interim injunctions at the High Court against UK-based Chesteroak Ltd, Bingen Investments Ltd, incorporated in Gibraltar, and Kahn under convictions that they have been involved in assisting overseas boiler room activities in the UK.
Boiler rooms allow traders to use banks of telephones to call lists of potential investors in order to sell fraudulent securities. In doing so, the trader gives customers only positive data regarding the stock and discourages them from doing any outside research.
In a related June 2008 final notice, the FSA has obtained a bankruptcy order against Kahn who controlled the affairs of Chesteroak Limited and Bingen Investments Limited, thereby admitting liability for claims totaling up to £3.7 million made by the FSA on behalf of about 800 investors.
The bankruptcy order came after the liquidations of Chesteroak and Bingen in September 2007 after the FSA alleged that they were dealing in shares or arranging deals in shares without authorization.
The FSA added that the scheme involved a significant proportion of GBL’s shares being donated to charities and were coordinated by Kahn to take advantage of “of GBL’s artificially inflated share price for tax relief purposes and for the purpose of facilitating boiler room activities.”
The fine consists of disgorgement of £210,563 and a financial penalty of £884,365, leading to a total fine of £1,094,900 after rounding down. It is the first calculated under the FSA’s new penalties regime introduced on March 6, 2010.