The FSA announced on Tuesday that it would proceed with £750,000 fines against Phillip Jabre and GLG Partners, one of Europe's largest hedge fund managers, for alleged insider trading. Jabre, a former GLG Partners director, dropped his appeal against the fine last week after the Financial Services and Markets Tribunal, which adjudicates on challenges to FSA penalties, ruled against him on two issues central to his appeal. The FSA fined Jabre £750,000 in February for market abuse and violating market conduct by trading on privileged information relating to a preference share sale for Sumitomo Mitsui Financial Group in 2003. GLG Partners was also fined £750,000 for not properly monitoring Jabre's work. Margaret Cole, FSA director of enforcement said: "Jabre traded on information he had received as a result of the position he enjoyed as a leading hedge fund manager." In court filings Jabre's lawyers had questioned whether the UK financial regulator had any jurisdictional authority to penalise him, as the shares were traded on the Tokyo stock exchange. The tribunal ruled that it did. At a preliminary hearing of Jabre's appeal against the fine last month, the FSA had called for Jabre to be banned from trading in the UK. Jabre's lawyers claimed the tribunal could not impose a ban on their client, as it did not have the power. The FSA had earlier sought to ban Jabre from trading, but the request was rejected by the Regulatory Decision Committee, an FSA board that sets penalties. Jabre's lawyers claimed that the matter in question was the £750,000 fine and not a ban. The tribunal ruled that it could also rule on whether or not to ban Jabre. Cole said: "The stability and fair operation of the markets through legitimate pre-marketing activities is jeopardised if those who are wall-crossed do not respect the restrictions imposed on them." With regards to the fine levied against Jabre's former employers, Cole said: "GLG is also responsible for Jabre's market abuse. Firms are accountable for the behaviour of their employees, particularly if they are at a senior level." GLG Partners has not appealed against the fine. A spokesman for Jabre said he was disappointed by the tribunal's ruling but said Jabre would pay the fine and wanted to put the affair behind him. Enforcing the law The FSA's Cole said: "These decisions provide clarification on two points of general importance to our work. The tribunal has made it clear that it can impose a different or greater sanction than that imposed by the Regulatory Decision Committee. And the tribunal has confirmed that it is not possible for someone with inside information on a UK traded stock to circumvent the market abuse regime by trading in that stock on an overseas market." Another FSA spokesman told EuroWeek that the regulator had no intention of pursuing the trading ban against Jabre, who had made no secret of the fact he wanted to manage money again. Jabre's spokesman said: "It's a bit premature to say exactly what he's going to be doing as he hasn't made his mind up, but he does want to manage money again." EuroWeek understands that when Jabre left GLG Partners he entered into a nine month non-compete agreement with the hedge fund. GLG declined to comment when contacted. Before he can return to the market, however, he must obtain approval from the FSA to trade. When he left GLG earlier this year his authorisation lapsed. It is uncertain how the FSA will treat Jabre's application, having stated previously that he was "not a fit and proper person to perform functions in relation to a regulated activity carried on by an authorised person". Short selling The FSA claims Jabre acted on non-public information provided by John Rustum, a senior salesman at Goldman Sachs, as part of a pre-marketing exercise into an SMFG convertible preference share issue. Lawyers for Jabre claim he did not commit market abuse and had misunderstood what Rustum had been telling him. The FSA claims that after his conversation with Rustum on February 11, Jabre must have been "aware that if he sold SMFG shares 'short' prior to the [public] announcement of the share issue, he would be likely to realise a profit after the issue was announced and the SMFG share price fell."
August 04, 2006
