On September 8, the UK’s Financial Services Authority (FSA) brought an action against a hedge fund manager for using inside information to deal in corporate bonds. According to the FSA, the case is the first action that it has taken concerning market abuse in the credit markets. The subject of the case, Steven Harrison, a former manager with Moore Capital Management, was fined £52,500 and agreed not to act as a fund manager or trader for 12 months.
Navigant Consulting’s Ian Brown has an interesting article on the case in today’s Hedge Funds Review. He says that hedge funds and their managers need to focus on this case because the FSA is unlikely to be as “sympathetic” going forward given its current focus on establishing a credible deterrence message in insider dealing and market abuse. He writes:
Although the FSA found Harrison’s conduct was not deliberate, it did make the point that he “ought to have realised that the information he was given constituted inside information”.
This is an unusually sympathetic view for the regulator given that it had evidence that Harrison had been asked if he “wished to receive restricted information in connection with an upcoming financing”. This was immediately before being given information, which he later claimed he did not identify as inside information, and despite the fact he almost immediately instructed his traders to purchase the bonds to which the information referred.
It is doubtful the FSA will continue to be so sympathetic. Hedge fund managers can expect closer scrutiny in respect of equity markets and credit market transactions.
