Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

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Wed, 22 Feb 2006

FSA Loses Minmet Insider Trading Case

The Independent pointed me to a very interesting decision by the Financial Services and Markets Tribunal overturning an insider trading decision of the Financial Services Authority in the United Kingdom.

The most damaging part of the tribunal’s decision is towards the end when it states:

We have kept in mind that the burden of proof lies on the Authority, and the standard of proof (the balance of probability) must take into account the gravity of the allegation made. But our decision in the applicants favour does not depend on the burden of proof. On consideration of the whole of the evidence we are satisfied that there was not a telephone conversation between Mr Nolan and Mr Baldwin on 29 July 2003, and are satisfied that WRT’s trading in Minmet and Tiger shares was innocently conducted.

Usually when courts and tribunals acquit somebody they are quite happy to take shelter under the assertion that the prosecution has not met the standard of proof. Here the tribunal goes beyond this to assert that the accused have proved that they are innocent. It is difficult to imagine a more comprehensive defeat for a regulator.

Interestingly, the tribunal avoids even a suggestion that the main prosecution witness was lying. Even while stating categorically that they preferred the evidence of the accused to that of the key prosecution witness, the tribunal states:

We found no reason to doubt the good faith of any of the witnesses, who we considered were all doing their best to assist us.

The experts that the FSA relied on are also treated kindly but the tribunal does find that the experts were “inappropriately constrained” by the remit that the FSA gave them. At the end of it all, only the FSA comes out as the loser in this decision.

Posted at 13:39 on Wed, 22 Feb 2006     View/Post Comments (0)     permanent link