Enforcement watch: The Financial Conduct Authority continues its robust enforcement strategy with recent prosecutions for insider dealing

On 16 February 2024, a former Goldman Sachs analyst, Mohammed Zina was sentenced to 22 months in prison having been found guilty the preceding day of six offences of insider dealing in relation to trading between 15 July 2016 and 4 December 2017 and three offences of fraud.

In his role in the Conflict Resolution Group at Goldman Sachs, Mr Zina had access to inside information about potential takeovers and mergers of companies listed on the London Stock Exchange and Nasdaq in New York. The fraud offences related to a loan from Tesco bank totalling £95,000, much of which was used to fund the dealing, as opposed to home improvements for which the loan was obtained.

Confiscation proceedings have been listed in September 2024. Mr Zina's brother, a former solicitor at Clifford Chance, was found not guilty in relation to the same charges on the basis of insufficient evidence. It is notable that no action was taken against Goldman Sachs.

Therese Chambers, joint executive director of enforcement and market oversight, recently shed some light on this commenting in a recent speech "Cooperation from the firm was key – and thankfully they could show they had robust systems in place."

This latest case is one of a steady stream of prosecutions for insider dealing which demonstrates the FCA's commitment to its strategic priorities. The risk that market abuse and insider dealing poses has long been highlighted as a priority for the FCA, including previously stating "market abuse undermines the integrity of the UK financial system, eroding confidence and lowering participation, to the detriment of all market participants".

Earlier this month, the FCA announced that it had worked alongside the NCA to secure the arrest of three London based individuals on suspicion of insider dealing/money laundering linked to organised crime. A fourth suspect was interviewed under caution. Steve Smart, joint executive director of enforcement and market oversight commented that "Insider dealing poses a significant threat to the integrity of financial markets both in the UK and overseas. The FCA is committed to combatting organised criminal networks involved in this threat."

Other upcoming insider dealing proceedings include Mr Korfuzi and his four associates and two individuals charged with insider dealing offences in relation to trading in shares in British Polythene Industries plc (BPI), ahead of an announcement that RPC Group plc was to acquire BPI are due to stand trial in September 2023, due to the inability of the jury to reach a verdict in May 2022.

This growing focus on criminal prosecutions and the inevitable nexus with money laundering may be informed by Steve Smart's previous role as Director of Intelligence at the NCA, and builds on the precedent set by Mark Steward who oversaw successful insider dealing convictions of individuals such as Ms Abdel-Malek (formerly a senior compliance officer at UBS AG) and Mr Choucair in December 2020.

Other criminal proceedings brought by the FCA include including in respect of alleged fraud and/or breach of the general prohibition in relation to an unauthorised investment scheme (see our recent article) and proceedings in connection with false and misleading statements to the market and/or false accounting in respect of Timothy Coleman in March 2022 (former CFO of AIM listed Redcentric plc) and Estelle Croft (former Finance Director of Redcentric plc) in August.

We expect to see an ongoing focus on criminal proceedings in the right cases, particularly where these involve insider dealing and/or financial crime, consistent with the FCA's strategic priorities of deterring harm, protecting consumers and markets.

The FCA will be assisted in this by drawing data from a number of market cleanliness measures including the Potentially Anomalous Trading Ratio, the Abnormal Trading Volume ratio and the Electronic Submission System as part of an increasingly data and technology driven approach to detecting potential market misconduct.

Firms should regularly review their systems and controls including considering whether to widen the types of trading conduct that could trigger an automated alerts of potentially anomalous trading, promptly review trading which prompts an alert, together processes around the control of inside information and market abuse training.

 The Financial Conduct Authority continues to crack down on insider dealings with a series of prosecutions.

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