Welcome to our sixth posts of this series that looks at the offence of Dissemination.
Dissemination is defined as giving out information that conveys a false or misleading impression about an investment or the issuer of an investment where the person doing this knows the information to be false or misleading.
The FCA deals with this offence in section MAR 1.8 of its Handbook, where the regulator also describes behaviour that amounts to market abuse in the form of dissemination:
(1) knowingly or recklessly spreading false or misleading information about a qualifying investment through the media, including in particular through an RIS or similar information channel;
(2) undertaking a course of conduct in order to give a false or misleading impression about a qualifying investment.
The regulator also specifies factors that should be taken into account in determining whether or not behaviour amounts to dissemination:
(1) if a normal and reasonable person would know or should have known in all the circumstances that the information was false or misleading, that indicates that the person disseminating the information knew or could reasonably be expected to have known that it was false or misleading;
(2) if the individuals responsible for dissemination of information within an organisation could only know that the information was false or misleading if they had access to other information that was being held behind a Chinese wall or similarly effective arrangements, that indicates that the person disseminating did not know and could not reasonably be expected to have known that the information was false or misleading.
Lastly, the FCA gives in this section also two examples of relevant behaviour:
(1) a person posts information on an Internet bulletin board or chat room which contains false or misleading statements about the takeover of a company whose shares are qualifying investments and the person knows that the information is false or misleading;
(2) a person responsible for the content of information submitted to a regulatory information service submits information which is false or misleading as to qualifying investments and that person is reckless as to whether the information is false or misleading.
Talking about examples, the FSA, the FCA’s predecessor, had produced a factsheet on market abuse offences, where they too gave an example for dissemination that shows that the line to other offences (in this case Manipulating Devices) can be thin: A person uses an internet bulletin board or chat room to post information about the takeover of a company. The person knows the information to be false or misleading. This could artificially raise or reduce the price of a share and lead to people making the wrong investment decisions.
As always, we would like to leave you with some real life examples:
– FSA bans and fines directors a total of £600,000 for publishing misleading information about Cattles plc
The Financial Services Authority (FSA) has fined and banned two former directors of Cattles plc (Cattles) and its subsidiary Welcome Financial Services Limited (Welcome) for publishing misleading information to investors about the credit quality of Welcome’s loan book and acting without integrity in discharging their responsibilities. The FSA has also publicly censured Cattles and Welcome for publishing misleading information. For more information on the case click here.
– FSA fines former CEO of Sibir £350,000 for market abuse
The Financial Services Authority (FSA) fined Henry Cameron £350,000 for making misleading announcements to the market regarding payments from Sibir, a large energy company that was quoted on AIM, to its major shareholder. For more information on the case click here.
– FSA fines and bans oil futures broker for market abuse
The Financial Services Authority (FSA) has fined Steven Noel Perkins, a former oil futures broker, £72,000 for market abuse. The FSA has also banned Perkins from working in the financial services industry on the grounds that he is not a fit and proper person. A significant amount of the unauthorised trading carried out by Mr Perkins constituted market abuse in that it gave a false and misleading impression as to the supply, demand and price of ICE August 2009 Brent Crude Futures contract (“Brent”) and, further, in that it secured the price of Brent at an abnormal and artificial level. The trading records show that Mr Perkins’ trading had the direct effect of increasing the price of Brent. For more information on the case click here.
– FSA fines Shell £17,000,000 for market abuse
The FSA has today fined the Shell Transport and Trading Company (“STT”), Royal Dutch Petroleum Company (“RDP”) and the Royal Dutch/Shell Group of Companies (“Shell”) 17 million for committing market abuse and breaching the listing rules.
This fine was imposed on Shell as a result of unprecedented misconduct in relation to misstatements of its proved reserves. When Shell first publicly revealed on 9 January 2004 that it had misstated its reserves, STT’s share price fell from 401p to 371p (7.5%) reducing its market capitalisation on that day by approximately 2.9 billion. For more information on the case click here.
For more examples, have a look at the FCA’s Market Abuse Outcome page, where the FCA continues to publish information about action it has taken against market abuse and other related conduct: http://www.fca.org.uk/firms/markets/market-abuse/outcomes
If you’ve missed the previous posts of this series or for more information on everything about Market Abuse, have a look here.
Follow our series on the 7 deadly sins of Market Abuse in the next article on “Distortion and misleading”.