FCA Issues First Ever Fine Against Individual Based on Antitrust Misconduct
What has happened?
On 4 February 2019, the UK Financial Conduct Authority (FCA) imposed a £32,000 fine on Paul Stephany, a former fund manager at Newton Investment Management Ltd. (Newton), for attempted bid-rigging in the context of the book-building processes for an IPO (by On The Beach Group plc) and a share placement (by Market Tech Holdings Limited) in 2015.
The fine marks the first time the FCA has sanctioned an individual for their role in a suspected antitrust infringement. As first announced in November 2017, the FCA is conducting a parallel antitrust investigation, in which Newton and three other asset management firms are defendants, which could result in antitrust fines against them.
According to the FCA’s Final Notice, Stephany contacted competitor fund managers; disclosed to them confidential information about his orders for shares, including the price limit and size; and urged them to cap their orders at the same price limit in order to reduce the issue price. In an email following the IPO, Stephany thanked any managers who “did indeed come in with a low ball bid”.
The FCA found that in doing so, Stephany breached FCA Statements of Principle 2 (acting with due skill, care and diligence) and 3 (observing proper standards of market conduct).
The amount of fine was calculated in accordance with the FCA’s prescribed methodology, taking into account: the lack of direct benefit derived by Stephany; and the seriousness of the misconduct, based on its impact (e.g. on the issuers), its nature (e.g. not an isolated incident), and that the breach was not deliberate (i.e. Stephany researched and wrongly concluded that the conduct was unproblematic). Whilst the FCA also had the power, under section 56 of the Financial Services and Markets Act 2000, to prohibit Stephany from performing functions in relation to regulated activities, it chose not to do so.
Why does this matter?
The FCA's decision is notable for a number of reasons:
- The fine signals the FCA’s intention to back up its antitrust enforcement efforts against companies (under the Competition Act 1998) with regulatory enforcement action against individuals (under the Financial Services and Markets Act 2000). Unlike in other sectors, individuals thus face regulatory fines and possible bans from the financial services industry for antitrust misconduct.
- The FCA’s Final Notice provides some insight into its parallel antitrust investigation, and re-emphasises the importance that firms involved in IPOs and share placements should form their views on pricing independently of competitors. If the findings in the FCA’s Final Notice carry over into an antitrust infringement decision, the firms involved face potentially significant fines and claims for damages.
- The fine highlights the need to educate employees about the application of antitrust rules, the consequences of non-compliance, and the importance of raising any concerns or doubts with their compliance department. Indeed, it is notable that whilst Stephany contacted at least eleven competitor firms, only three others are defendants alongside Newton in the FCA’s parallel antitrust investigation. The Final Notice suggests that those firms whose employees actively distanced themselves from any attempt to influence issue prices may have avoided antitrust charges as a result.
What happens next?
Stephany must pay the FCA fine within 14 days.
The FCA is continuing to pursue its antitrust charges against the four asset management firms, and indicated that it will make an announcement regarding the outcome of the investigation “in due course”.
How can Cadwalader help?
Cadwalader’s antitrust team is one of only a few to focus on the financial services sector. We regularly represent companies before the EU, UK and US antitrust authorities, and are specialists in offering ‘end-to-end’ advice on antitrust investigations and related litigation in this sector, working closely with our financial regulatory and white collar colleagues.