Former Compliance Officer at Greenlight Capital and JP Morgan Cazenove Trader Fined
The Financial Services Authority (FSA) has fined Alexander Ten-Holter, trader and former compliance officer at Greenlight Capital (UK) LLP (Greenlight) £130,000 for failing to question and make reasonable enquiries before selling Greenlight’s shareholding in Punch Taverns plc (Punch) ahead of an anticipated significant equity fundraising by Punch in June 2009, and prohibited him from performing Compliance Oversight and Money Laundering reporting functions.
The FSA has also fined Caspar Agnew, a trading desk director at JP Morgan Cazenove, £65,000 for failing to identify and act on a suspicious order from Greenlight to sell Punch shares that allowed the firm to be used to facilitate insider dealing or market abuse. As a result of his failings JP Morgan Cazenove failed to identify the trade as suspicious and report it to the FSA.
On 9 June 2009, Ten-Holter received an order to sell Greenlight’s entire shareholding in Punch despite being made aware that Greenlight had spoken to Punch management a matter of minutes before its decision to sell. The Greenlight analyst who gave the sell-order told Ten-Holter that Punch management would have told them “secret bad things” had they signed a confidentiality agreement and the analyst thought that Greenlight had potentially a window of a week before the stock “plummets”.
This should have alerted Ten-Holter to the risk that Greenlight may have been in receipt of inside information.
Ten-Holter took no steps to satisfy himself that the order was not based on inside information, despite the clear risk that it was. In fact, Greenlight had received inside information in the course of the call with Punch management and had based its decision to sell on that inside information. Ten-Holter simply executed the order, instructing Agnew to sell on behalf of Greenlight.
On 15 June 2009, Punch announced a fundraising of £375 million. Following the announcement, the price of Punch shares fell by 29.9%. Greenlight’s trading had avoided losses of approximately £5.8 million for the funds under Greenlight’s management. This should have again prompted Ten-Holter to question and make enquires regarding the order to sell.
Instead, he took no action to satisfy himself that Greenlight’s trading had not been based on inside information in relation to the fundraising.
Ten-Holter failed to act with due skill, care and diligence despite his knowledge of the suspicious circumstances surrounding Greenlight’s sale of its shares. In addition to imposing a fine of £130,000, the FSA has concluded that he is not fit and proper to act as a compliance officer.
The FSA expects compliance officers to be vigilant for signs that transactions may be improper, to investigate and, if not satisfied as to the propriety of the transaction, to prevent the trade.
Agnew’s misconduct related to his dealings with Greenlight between 9-12 June 2009 when he was instructed by Ten-Holter to sell 11.4 million Punch shares, which constituted over 4% of its issued share capital. This represented approximately 68% of all trading in Punch shares over that period.
Agnew failed to act with due skill, care and diligence especially because he became aware of the possibility that there had been a pre-marketing of Punch shareholders prior to the unscheduled announcement, and that major shareholders were likely to have obtained inside information through pre-marketing. Shareholders contacted during such a pre-marketing exercise are not allowed to trade on receipt of that inside information.
Agnew failed to identify and alert JP Morgan Cazenove, his employer, to the possibility that the trade was being conducted on the basis of inside information and as a result no Suspicious Transaction Report (STR) was submitted to the FSA. Agnew thought that Greenlight was simply fortunate in the timing of its transactions.
Tracey McDermott, acting director of enforcement and financial crime, said: “Ten-Holter’s approach to compliance oversight was wholly inadequate. Serious compliance failures of this nature can have a dramatic effect on the orderliness and integrity of the markets. Agnew was an experienced trader, so should have been suspicious of this transaction and aware of his responsibilities to report it.
“Tackling market abuse and insider dealing is not just an issue for the regulator. Compliance professionals and staff on sales and trading desks play a key role in assisting the FSA in detecting and preventing market abuse. Approved persons should be in no doubt as to their responsibilities in this area and the FSA will not hesitate to take tough action where they fall down on these.”