Banking & Finance Disputes Journal - August 2016
DAC Beachcroft's Banking & Finance Disputes Update focuses on events occurring within the banking, financial, city business and general regulatory sectors that give rise to or concern contentious…
Published 3 August 2016
On 15 July 2016, the FCA imposed a fine of £59,557.00 on Gavin Breeze ("Mr Breeze"), a Jersey resident, in respect of shares which he sold in September 2014 in MoPowered Group plc ("MoPowered"), an AIM listed company which designs mobile payment software applications.
Between 2009 and 2013, Mr Breeze, an experienced business man, was Non Executive Chairman of MoPowered. He founded Datacash Group (which was acquired by Mastercard in 2010) and is a Non Executive Director of two listed companies. In his capacity as a Non Executive Director he has received training on the obligations surrounding inside information.
In June 2014, MoPowered decided to raise capital of £3.5m through a share placing and it instructed a broker to identify potential investors for the placing. The broker approached a limited number of the largest existing shareholders to advise them of the potentially dilutive effect of the placing and to offer them an opportunity to subscribe for shares.
On 12 September 2014, the CEO of MoPowered called Mr Breeze to inform him of the proposed placing and to confirm that he had instructed MoPowered's NOMAD to include Mr Breeze on the insider list for the placing.
Shortly thereafter, the CEO sent Mr Breeze a presentation setting out the timetable for the share placing, its announcement and the company's plans for the use of the funding. This email also included details of MoPowered's unpublished interim financial results, which confirmed that whilst revenue had increased, pre tax losses had increased from £1.4m to £2.3m. The presentation was attached to an email to Mr Breeze which stated, "existing shareholders….will get priority in the allocation and that, regrettably the placing is likely to be priced at a discount to the current share price".
Mr Breeze did not respond to the email or provide any indication as to whether he wanted to subscribe for the shares in the placing. However, later the same day Mr Breeze forwarded the CEO's email attaching the presentation to another shareholder who was not an "insider" stating "What do you think?" . The other shareholder did not act on the information provided by Mr Breeze.
Mr Breeze forwarded the CEO's email attaching the presentation to another shareholder who was not an "insider" stating "What do you think?". The other shareholder did not act on the information provided by Mr Breeze.
At 08.33 on 18 September 2014, when the share price of MoPowered was about 24.25p, the CEO of Mo Powered sent Mr Breeze another email to advise him that whilst Mo Powered had succeeded in obtaining commitments to raise the full £3.5m, one institutional investor "has turned round at the last minute to say that they will only put their money in at 5p per share which is an enormous discount on the current market price. We need to find a further c£400,000 by around noon to get the price to 10p otherwise, I'm afraid, we have to accept what's on the table. Could we have a call this morning to see if you'd consider participating under these circumstances?"
At 9.38 on 18 September 2014, Mr Breeze sent his broker an email instructing him to "Please sell all my MoPowered at any price." A few minutes later at 9.45, Mr Breeze emailed the MoPowered's CEO to confirm that he would not be taking part in the share placing.
Mr Breeze's broker confirmed by email later in the morning that they would not be able to sell Mr Breeze's entire shareholding of 1,273,500 shares in MoPowered and suggested that they start with an order of 10,000. The broker further commented that as the market was not looking for stock the 10,000 share order might "do more harm than good". Mr Breeze responded at 11.11 the same day to confirm that "I would like to sell as much as I can, as soon as I can."
By the close of the market on 19 September 2014, 10,000 of Mr Breeze's shares had been sold at 26p per share. The closing price of MoPowered's shares that day was 20.25p per share.
MoPowered announced the intended share placing after the market closed on Friday 19 September 2014 and on 22 September 2014, when MoPowered announced at 7am that it had raised approximately £3.5m through its share placing at an issue price of 5p, the share price dropped from 20.25p to 8p per share.
The sale of 10,000 shares in MoPowered by Mr Breeze avoided him incurring a loss of some £1,900 although had Mr Breeze have been able to dispose of his entire shareholding, he would have been able to avoid a loss of some £242,000.
The FCA considered that Mr Breeze's conduct both in (1) effecting a sale of his shares in MoPowered and (2) improperly passing information to another shareholder who was not aware of the proposed share placing and failing to take any steps to ascertain if the shareholder was already aware of the inside information, amounted to market abuse in breach of S118 (2) of the Financial Services and Markets Act 2000. Mr Breeze has been publicly censured and the FCA have commented that that "Mr Breeze's conduct demonstrates the abuse of insider trading is not well understood or appreciated even by experienced industry professionals".
The FCA imposed a fine on Mr Breeze of £59,557.00 pursuant to S123 (1) of the Act and required compensation to be paid pursuant to S384(5) of the Act of £1,850.00 plus interest which is to be paid to those who suffered loss as a result of Mr Breeze's actions. Mr Breeze benefitted from a 30% discount on his fine as he agreed to settle the matter at an early stage.
This is the second case in a short period of time where the FCA have pursued traders through a civil route where the amounts involved are relatively small and demonstrates its continued strong stance on market abuse at any level.