Ex-Merrill Lynch Broker Fined £350,000 for Disclosing Inside Information

Jack Humphrey, Regulatory journalist
February 20, 2012 /

The Financial Services Authority (FSA) has fined the former managing director in Corporate Broking at Merrill Lynch International (now Bank of America Merrill Lynch International) £350,000, for “improperly disclosing inside information” ahead of a significant equity fundraising by Punch Taverns Plc (Punch) in June 2009.

Andrew Osborne allegedly acted on behalf of Punch and approached Greenlight Capital Inc (Greenlight), a major shareholder at the time. Greenlight refused to be “wall-crossed” yet on 9 June 2009, Osborne proceeded with a conference call between Punch management and David Einhorn, President of Greenlight.

On 25 January 2012, the FSA announced that it had fined David Einhorn and Greenlight Capital Inc £7.2 million for trading on inside information in Punch Taverns plc.

Wall-crossing is a process whereby a company can legitimately provide inside information to a third party. It is often used in circumstances such as gauging interest amongst existing shareholders for a proposed transaction (for example, merger, acquisition or fundraising).

Once a third party agrees to be wall-crossed, it can be provided with inside information and it is then restricted from trading or disclosing the information further. The party can only trade in the company’s shares again once the information is made public or it is confirmed that the transaction will not proceed.

During the call, Osborne allegedly disclosed inside information that Punch was at an advanced stage of the process towards a significant equity fundraising, probably within the timescale of a week.

As an approved person with considerable experience, Osborne was fully aware of his duties not to disclose inside information and to consider the risk of market abuse, the FSA said.

The regulator added that he failed in both these duties and engaged in market abuse by improperly disclosing inside information to Greenlight. While the FSA accepted Osborne’s actions that were claimed to be not deliberate, this was a serious case of market abuse which undermined the integrity of the market and damaged market confidence.

Shortly after the call, Osborne was aware that Greenlight was selling Punch shares. He failed to raise concerns with senior management, legal or compliance personnel or take any steps to address the risk of market abuse. On 15 June 2009, Punch announced an equity fundraising of £375 million and the price of its shares fell by 29.9 percent. Greenlight’s trading ahead of the announcement avoided losses of approximately £5.8 million.

Tracey McDermott, acting director of enforcement and financial crime, said: “Osborne was a highly experienced broker in a position of considerable responsibility at a leading financial institution. He was trusted as the gatekeeper of inside information and should have been extremely cautious in proceeding with the call with Greenlight in light of the clear legal and regulatory risks involved.

“By disclosing inside information, Osborne engaged in serious market abuse. His actions undermined the orderliness and integrity of the market and the high penalty reflects the seriousness of his breach. There should be no doubt about the FSA’s commitment to take tough action where approved persons fail in their responsibilities.”

On 27 January 2012, the FSA announced that it had fined Alexander Ten-Holter £130,000 for serious compliance failures and Caspar Agnew £65,000, for failing to identify and act on a suspicious order from Greenlight to sell Punch shares.

 

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