FSA to fine former Evolution Stock Guru

A former Evolution Securities analyst and his friend from university have been charged of committing market abuse after two spreadbets were placed inside a series of unrecorded mobile phone calls between the pair.

A prominent former Evolution Securities analyst faces a hefty fine after a tribunal has found him guilty of passing insider information to a mate of his. In the summer of 2004, Robin Chhabra worked as a leisure analyst at Evolution where he covered 20 stocks. Evolution was then corporate broker to London publicly-traded Eidos and Ebookers and Robin was found guilty of passing insider information about the two firms to Sameer Patel on three separate occasions.

Mr Patel, who also worked in the City at General Motors Asset Management but was dealing independently at the time used the insider information to place spread bets on the direction of Eidos, a video games company and travel company Ebookers shares. Patel who was using his own money to trade managed to make at least £85,500 as a result. It transpired that part of the gains were made when the firms issued profits warnings during the middle of a trading day – a rare occurrence, rather than 7am – the tribunal was told by the Financial Service Authority.

The analyst and his friend from university have been charged of committing market abuse after two spread bets were placed inside a series of unrecorded mobile phone calls between the two. Sameer made the bets just minutes after receiving the calls from Chhabra who was privy to market sensitive information about the companies. Mr Chhabra and Mr Patel can now expect the amount of penalty payable to run into the tens of thousands pounds more than the £85,541 Patel made from spread betting using insider information.

Patel was an experienced spread better who regularly placed spread bets using an account he had opened with IG Index. The position that Mr Patel must have taken must have been substantial and, unsurprisingly, IG Index must have suspected irregular activity.

Robin Chhabra, 38, who was a leisure analyst at Evolution, and Sameer Patel, 38, who have known each other for more than 2 decades and acted as each other’s best man had some 165 ‘telephone contacts’ between 20 April and 3 August 2004. The two men now risk being banned from working in the financial services industry following yesterday’s verdict from the Financial Services and Markets Tribunal, an independent body that rules on contested Financial Services Authority cases, which upheld an earlier decision from the Financial Services Authority.

The Financial Services Authority told the tribunal: ‘An unscheduled intraday profits warning is an unusual occurence and the likelihood that on two separate occasions in nine weeks Mr Chhabra knew about such markets and Mr Patel placed successful sell bets on the same day without knowing about such warnings was infinitesimal.’

Chhabra tried to argue that the Financial Service Authority’s case was circumstantial and did not satisfy the burden of proof that was required, while Patel argued that there was no ‘clear evidence’ he had behaved in a ‘reprehensible manner’.

However the FSMT was quoted as saying: ‘Mr Patel did place his bets in reliance on restricted information not generally available which had been disclosed to him by Mr Chhabra and…both Mr Chhabra and Mr Patel did engage in market abuse.’

The case was heard by the Financial Services and Markets Tribunal (FSMT) after the pair contested the FSA’s decision to fine and ban them. Their punishment will be decided at a later FSMT hearing. The case is unusual where both defendants have been charged based on circumstantial evidence; the phone calls between the two men were placed at coincidental times to the spread bets. This is a civil rather than criminal investigation and so the two men won’t be sent to jail.

The verdict comes after a busy year for the Financial Services Authority which has increased average fines by nearly 60 per cent in 2009 as the Authority increasingly targeted individuals in its crackdown on financial wrongdoing. That trend is expected to continue with changes that will allow the Financial Services Authority to issue heavier fines as a deterrent to combat market abuse expected to come into force later this.

Comments: Finally a crackdown on insiders dealing as market abuse is a serious matter. One wonders how it took the Financial Services Authority almost six years to bring the case forward, but it’s probably better than in the old days, when it was almost impossible to achieve a criminal conviction.

Tags: FSA

This entry was posted on Tuesday, January 12th, 2010 at 1:37 pm and is filed under Industry News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.