Ian Hannam market abuse finding upheld

The case struck a chord across the City as it highlighted the risks faced by corporate finance advisors in seeking to meet their clients' mandates by enticing third parties to invest and the extent to which care must be taken in sharing information in furtherance of this objective.

Significantly, Mr Hannam was found guilty of a market abuse offence notwithstanding that his honesty and integrity was not doubted, nor the fact that he was acting in his client's best interests; and where no trading occurred and therefore no related gain or loss was made by any party.

The judgment contains a detailed analysis of certain of the market abuse provisions under FSMA. An in-depth summary can be read by clicking the download publication PDF link below.

Practicalities - key take away points:

• "Information" does not need to be entirely accurate in order to constitute inside information. Consideration must be given to the extent to which an accurate message is conveyed within, or can be inferred from, the communication, and an assessment of whether that information is inside information.
• To assess whether information would be sufficiently precise to be caught by the definition of inside information, it must indicate a possible price movement in a particular direction. The Upper Tribunal has helpfully clarified that an indication of a mere movement, with no discernible direction, will not suffice.
• Where a statement indicates future circumstances or events, the FCA must prove that there is a realistic prospect (as opposed to fanciful) that they will occur; although it need not be more likely than not that they will occur.
• Information will only likely have a significant effect on price if it is of the type which a reasonable investor would be likely to use in making an investment decision. A reasonable investor should not be expected to take account of any information which is unlikely to have a significant effect on price.
• If there is a real prospect of information having a significant effect on price (and therefore it being of a type that a reasonable investor would be likely to use in making an investment decision), then this will satisfy the requirement of it being "likely".
• It should not be assumed that a disclosure of information already known by the recipient would nevertheless not constitute an improper disclosure.
• A selective disclosure of inside information is only going to be permissible and in the proper course of employment where there are appropriate confidentiality restrictions in place. The discloser must be able to demonstrate that they know the recipient is aware of the need to keep the information confidential. The most prudent course would be for a confidentiality restriction to be recorded in writing in advance of the information being shared.
• To assess whether a person is acting in the proper course of your employment, an assessment should be made as to whether the disclosure of the information is necessary and proportionate to achieve the intended objective of the communication.
• If it is decided that the information does not amount to inside information, this thought process would helpfully be documented at the time of disclosing the information. A failure to do so may make it difficult to demonstrate that the discloser had a reasonable belief that their behaviour did not amount to market abuse, preventing reliance upon the defence in s123(2).