Financial Services Authority looking into whether emails from culture department to News Corp broke insider trading rules
The stock market watchdog, the Financial Services Authority, is looking at whether a series of emails from the office of the culture and media secretary to News Corporation representatives broke rules on insider trading, the Guardian understands.
Emails disclosed on Tuesday during the Leveson inquiry into the media, appear to show that News Corp’s public affairs executive Frédéric Michel was given a unique insight into decisions being made by the culture secretary Jeremy Hunt into News Corp’s £8bn bid for BSkyB by Hunt’s special adviser, Adam Smith. Michel then relayed the information to his boss, James Murdoch, a News Corp executive and chairman of BSkyB at the time.
On Wednesday morning Smith resigned over the emails, acknowledging that their content, and his relationship with Michel, was inappropriate.
In one of dozens of messages, Michel appears to have been informed in advance of the details of Hunt’s decision to refer the BSkyB bid to Ofcom. Dated 24 Jan 2011, while markets were still open in London and Europe, Michel wrote to his boss, James Murdoch, that the information he had received from Hunt’s office was “absolutely illegal”. Murdoch has since said the reference had been a joke.
There is no allegation that any trading on information took place. But unlike the US’s Securities and Exchange Commission rules on insider trading, the FSA need not show that beneficial trades have been made under their “market abuse” rules in order to press charges.
Section 118C of the Financial Services and Markets Act (2000) states that it is unlawful to simply disclose sensitive market information which could be used for gain. Any individual can be charged for such an offence and need not be a licensed trader.
Under the act, the offence of “improper disclosure” states that it is a breach of the law to disclose inside information to another person other than in the proper course of their employment, profession or duties. The information itself must be precise, relate to shares or “qualifying securities”, not generally available, and price sensitive, and, in cases brought by the FSA, fines levied for such an abuse have run into hundreds of thousands of pounds. Codes governing UK company takeovers also state that shareholders must have equality of access to information.
The FSA has declined to confirm or deny that any preliminary investigation is taking place but the Guardian understands that the watchdog is looking into the issue. It could be many weeks or months before any potential charge could be brought.
After a period of “initial analysis” the matter would be referred to the FSA’s enforcement unit if it felt there was a case to answer. An spokesman for the watchdog said any charge under these rules would take several months to investigate, but once referred to the enforcement department, FSA officials would have the powers to requisition emails, information on telephone calls and other relevant data.
Even in the event of a charge being brought, it is still possible the public would not be informed. Only public sanctions have to be made known under FSA rules. A public sanction could include a fine but might only take the form of a private warning, which would not have to be disclosed on the FSA website.
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