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FSA granted High Court injunction to prevent market abuse

The FSA has fined Samuel Kahn £1,094,900 and secured its first final High Court injunction restraining him from committing market abuse.

Between March 24 and April 30 last year Kahn co-ordinated a scheme to deliberately inflate the share price of Global Brands Licensing plc, a company quoted on PLUS Stock Exchange.  

Kahn controlled the vast majority of the trading in GBL’s shares in March and April 2010, disguising his involvement in the scheme by repeatedly impersonating other people when placing orders to trade in GBL’s shares and co-ordinating trading conducted by third parties.

The trading moved GBL’s share price from 2p on March 24, 2010 to 5.25p at its height on April 20 2010.  The profits from this trading were withdrawn from a third party’s bank account at Kahn’s instruction and delivered to him in cash.  

The scheme also involved a significant proportion of GBL’s shares being donated to charities.  These donations were designed to take advantage of GBL’s artificially inflated share price for tax relief purposes and facilitate boiler room activities.  This part of the scheme was not successful as GBL’s shares were suspended by PLUS on April 30.

Kahn has never worked at an authorised firm regulated by the FSA but he was investigated by the FSA in 2007 for his involvement in overseas boiler room activities.

In 2008 the FSA made Kahn bankrupt after he admitted liability for claims totalling up to £3.7m made by the FSA on behalf of about 800 investors.  

In light of Kahn’s previous misconduct and his more recent actions in GBL, the FSA has obtained an injunction at the High Court restraining Kahn from committing market abuse in future.

This is the first time the FSA has exercised its powers under the Financial Services and Markets Act 2000 to obtain a final injunction against an individual to restrain market abuse.

FSA acting director enforcement and financial crime Tracey McDermott says: “Kahn undertook a month-long campaign of market abuse, manipulating 85 per cent of the buy trades and 91 per cent of the sell trades of GBL for his own financial benefit as well as to facilitate tax relief fraud and boiler room activities.

“The FSA views Kahn’s conduct as particularly serious due to his prior misconduct and previous action taken against him by the FSA.  In imposing a significant fine under our new penalties regime and obtaining an injunction against Kahn, we want to send a clear message to the market.  The FSA will not tolerate this type of repeat behaviour and will use all of our powers to ensure credible deterrence.”

Law firm CMS Cameron McKenna partner Simon Morris says the fine and the injunction is a remarkable first for the FSA.

But he adds: “However, this is a typical case of a fringe operator flouting the rules. Until the FSA digs into mainstream insider dealing the risk remains that the City will not take the message seriously.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. So whats the point of being authoirsed or even applying for authorisation if you can make so much money thta you can afford a £1m+ fine?

  2. Steven Farrall (Adviser Alliance) 24th May 2011 at 11:14 am

    This ‘policing’ activity is what we expect of the ‘authorities’. Trouble is, by the nature of things, the FSA’s functionaries conflate behaviour by criminals with the behaviour of the whole of the free market, which it sees as ‘chaotic’, rather than spontaneously orderly.. This ‘policing’ function can be easily off-loaded to private organisations like the London Stock Exchange who would work with the police to prosecute operators like Khan. Really, it is just more evidence for the pointlessness of the FSA.

  3. No report as to who the “charity” was. It would be of interest to know.

  4. This is not why the FSA was set up.

    Great that a crook has been caught but it should be the role of the LSE to police this behaviour. The FSA should get on with its actual role – although it has adopted so many remits of its own that Sants and the other quangocrats won’t be able to identify the FSA’s actual purpose, now lost in the mists of time.

  5. Exasperated Me 24th May 2011 at 2:15 pm

    “Look at how clever we are”

    Like a midge on an elephant’s bum…

  6. Really this is a little like reporting that the Sun rose in the East today.
    We know there are criminals. There have been criminals for 10,000 years. In most countries criminals are policed by the police. In this country it seems they are policed by whoever can claim a bonus and a headline.
    Because the FSA believe that everyone involved in finance is fundamentally deviant they can’t actually direct their financial and mental resources to cover genuine regulation of bank risk, of insurance company risk, of investment company risk, so we get the worst of all worlds, poor regulation and poor enforcement.
    Unfortunately criminal prosecution is one of the roles that the FSA was set up to do, and it has warped their approach to all other aspects of regulation. The mentality is “You’re all criminals at heart and its our job to stop you”. Trouble is, they are actually not much good at it.
    We know that there is crime in the financial industry because there is crime in every other section of society, even within Parliament and the Judiciary. The police don’t make a song and dance out of getting convictions, even though they appear to have a higher success rate than the FSA, because they know that a successful prosecution is merely that; it has little enough effect on the overall criminal aspect of society, other that to control its expansion.
    The core problem with the FSA is that they believe they are on an old fashioned religious crusade against those doing wrong. It would be better if the crusade was turned into something more positive. We know that there will always be a 5% level of deviancy in any part of society, so let’s concentrate more on making the 95% feel good about themselves. Peer pressure is generally considered the most powerful element in creating conformity to standards of behaviour, and in ensuring that others conform also.
    Conviction and sentencing is not the great deterrent to crime. Getting caught is the the deterrent, as the switching off and then on of the Traffic Cameras has shown. If the FSA, by default, admit that they are able to catch only a very small element of the deviant element they are actually encouraging the fringe element to believe that there is a reasonable chance they will get away with crime. It has been said in the past that crime does pay; the FSA are in effect confirming that it can.
    Congratulations to the FSA on prosecuting one sinner, but there are thousands of others out there, so let’s not get carried away.

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