FCA fines compliance officer and broker whose actions enabled market abuse to be committed in October 2010

Goekna was fined $9,621,240 (approximately £6 million) by the Financial Services Authority (FSA) on 11 November 2011 for market abuse.  It was the largest fine imposed by the FSA on an individual. 

In April 2010 Goenka was introduced to Parikh to execute trades in Gazprom and Reliance securities in LSE closing auctions.  A series of conference calls took place during which Goenka asked whether the closing price of Gazprom Global Depository Receipts (GDRs) could be raised by placing strategic orders.  Parikh explained the impact that the size and timing of various orders might have on the closing price.  However, although the matter progressed, an unforeseen announcement about Gazprom caused the price to drop unexpectedly on the intended trading day and the proposed trading was abandoned.

The FCA has concluded that Parikh failed to act with due skill, care and diligence by explaining the process of manipulation to Goenka without recognising the risk that this posed and without proper challenge or enquiry as to his intentions.  Further, although Parikh speculated that Goenka had a related structured product she did not discuss this possibility with her compliance officer.  The FCA has imposed a penalty of £45,673 on Parikh.

In October 2010 Goenka took the knowledge gained during the Gazprom preparations and used this as the basis for a successful strategy to illegally manipulate the closing price of Reliance and enabled him to avoid a loss of $3.1m on a related structured product. Parikh suspected but did not know that Goenka had an underlying structured product.  Parikh informed Davis that she had concerns about the proposed Reliance trading with the result that Davis became involved and monitored the trading. 

Although Davis was not aware of Goenka’s desire to manipulate the price nor that he in fact held a linked structured product, he was aware of sufficient information to constitute clear warning signals and failed to take preventative steps before authorising the trades.  Furthermore, Davis did not report the trading as suspicious after the event.

The FCA has concluded that Davis failed to act with due skill, care and diligence by failing to challenge the instructions for Reliance and by failing to refuse to accept the orders to trade. Davis held senior management positions at Schweder Miller and was responsible for compliance oversight.  The FCA has withdrawn his Significant Influence Functions (SIF) and prohibited him from holding those functions in future.  The FCA has imposed a penalty of £70,258. 

Tracey McDermott, Director of Enforcement and Financial Crime, said:

“The FCA’s actions against the two persons whose actions, or lack of, assisted Goenka make it clear that every individual involved in a chain that leads to trading must proactively challenge suspicious behaviour and ensure it is reported.  The collective failure of Parikh and Davis to recognise the warning signs and react accordingly meant they unwittingly enabled his manipulation to take place.

“All approved persons have a duty to help the FCA in its fight against market abuse, and must be vigilant in spotting, challenging and reporting market abuse.  That did not happen here.  Instead, Goenka’s manipulative strategy was allowed to proceed unchallenged.  This falls far short of our expectations of approved persons.”

The Final Notices published today should be read in conjunction with the Final Notice issued to Goenka in 2011.  The FCA has also today published a Decision Notice in relation to the same matter.

Notes for editors

1. The Final Notices for Davis[1] and Parikh[2].
2. The Decision Notice[3] referred to.
3. On 17 October 2011 Goenka was fined US$ 9.6 million for manipulating the closing price of Reliance GDRs on the LSE. The Final Notice issued to Goenka[4] in October 2011.

4. Davis settled on 5 July 2012 and received a 30% discount on his fine for settling at an early stage of the investigation.  If he had not settled early, his fine would have been £94,816.  

5. The relevant securities were Global Depository Receipts (GDRs).  These are parcels of shares in a particular company which are listed and traded on international exchanges separately from the company’s shares.  In publishing the Notices, the FCA is not in any way criticising Reliance or Gazprom.
6. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
7. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
8. Find out more information about the FCA, as well as how it is different to the PRA.