Double first for the FSA
The FSA has obtained its first High Court injunction to prevent market abuse and has issued a fine of £1m against an individual, Samuel Kahn, calculated using its new penalties procedure for the first time.
Why do you need to know?
Policing market abuse by injunction
For the first time, the FSA has obtained a Restraining Injunction from the High Court under section 381(1) of the Financial Services and Markets Act 2000 which prevents a participant in market abuse from engaging in further abuse. This appears to be a "half way house" approach to the imposition of criminal sanctions by the FSA – it has avoided the need for lengthy and costly criminal proceedings and has, on the one hand, imposed a significant financial penalty but, on the other hand, the wrongdoer also faces the risk of an ongoing criminal sanction if the injunction is breached.
Given the fact that Mr Kahn had already been made bankrupt by the FSA in 2008 due to his involvement in overseas boiler-room activities, the FSA clearly felt that financial penalties were, by themselves, not a sufficient deterrent to the individual in question. In acting in this manner, the FSA is clearly seeking to use the future threat of criminal proceedings alongside the existing financial sanctions to strengthen its policy of credible deterrence.
This appears to be a useful shortcut and finds its precedent in the FSA's previous use of such injunctions in other scenarios where, for example, an unauthorised entity takes deposits and the FSA obtains an injunction to prevent repeat behaviour (for example, injunctions were obtained against Pruthi, Anderson and Peacock last year at the same time as they were fined £115m for unlawfully accepting deposits).
Application of new penalties system
The decision is also of note as it is the first example of the FSA using its new penalties regime set out in the Decision Procedure and Penalties Manual ("DEPP"), which was introduced on 6 March 2010. The Final Notice is a helpful illustration of the manner in which the FSA will utilise these powers in the future.
Lawyers Shane Gleghorn, Stuart Broom, Paul Glass
http://reaction.taylorwessing.com/reaction/e-updates/NB_000561_Double-first-for-FSA_250511.html
