Thu. Aug 22nd, 2019

Planet Compliance

Innovation & Regulation in Finance

Former portfolio manager sentenced to 12 months imprisonment for insider dealing

7 min read

In a prosecution brought by the Financial Conduct Authority (FCA) Mark Lyttleton, a former Equity Portfolio Manager at BlackRock Investment Management (UK) Limited, has today been sentenced to 18 months reduced with credit to 12 months on two counts of insider dealing. A confiscation order was also made in the sum of £149,861.27 and costs awarded to the FCA of £83,225.62.

In sentencing Mr Lyttleton the trial judge HHJ Goymer remarked: “Insider dealing is not a victimless crime, I regard these offences as pre-meditated and blatantly dishonest.”

Mark Steward, Executive Director of Enforcement and Market Oversight, said:

“Lyttleton’s insider dealing involved a gross abuse of the trust placed in him as a senior fund manager. He tried to hide his misconduct through the use of unregistered mobile phones and setting up a company in his wife’s maiden name in an overseas jurisdiction. None of this meant he could avoid detection.”

“Those who are tempted to insider deal, especially financial industry professionals, must know now they are more likely to be caught than ever before and, when caught, they will likely face a custodial sentence.”

Overview of the facts

In 2012 the FCA commenced an investigation into suspicious trading by Mark Lyttleton. Lyttleton was suspected of placing trades in stocks on the basis of inside information gleaned by him in the course of his employment at BlackRock Investment Management (UK) Limited. Lyttleton worked as a Fundamental Equity Portfolio Manager in the EMEA Fundamental Equity Team at BlackRock throughout the relevant period.

In November 2010 Lyttleton purchased a Panamanian registered company called Huduno Invest S.A. He placed the beneficial ownership of this company in the name of his wife, using her maiden name.  Personnel from Caldwell and Partners, a Swiss based Asset Management and Financial Advisory Company were placed as Huduno’s president, secretary and treasurer.

In November 2010 Huduno entered into an asset management agreement with Caldwell & Partners, this provided the asset manager with discretion to place trades on Huduno’s behalf, but also to execute instructions from Huduno.

In February 2011 Huduno opened a trading account with Banque Heritage in Switzerland, with Caldwell & Partners having power of attorney to place trades and execute other instructions.

Having obtained inside information, Lyttleton then instructed Caldwell and Partners, a Swiss Asset Manager and Financial Advisory Company, to trade in the stocks on behalf of Huduno Invest S.A. The trading was ordered through the trading account held in the name of Huduno at Banque Heritage, using two UK based brokerages.

The stocks Lyttleton placed trades in were EnCore Oil Plc and Cairn Energy Plc. The trading in EnCore related to standard equities whereas the Cairn trading was in call options.

On 3 October 2011, another Blackrock portfolio manager was provided with inside information by Encore’s advisors Rothschild concerning Premier Oil Plc’s proposed acquisition of the shares in Encore. At the time Blackrock were a major shareholder in the stock, and their commitment was sought to support the offer by a Letter of Intent. Details of this transaction were discussed with Lyttleton as he also held the stock in funds that he managed and knew the stock and sector well.

On the basis of that information, Lyttleton instructed his asset managers to purchase 175,000 shares in Encore Oil ahead of the public announcement of this acquisition. An announcement was made to the market via the London Stock Exchange news service on 5 October 2011 which resulted in an increase in the price of EnCore’s share price.

Lyttleton then placed further instructions with his asset managers to close his position shortly after. As a result of this disposal he realised profits of £44,125 from this trading.

On 2 November 2011, another Blackrock portfolio manager was provided with inside information concerning Cairn Energy and drilling results from one of its wells in Greenland. At the time Blackrock were a major shareholder in the stock. This information was discussed with Lyttleton as he also held the stock in funds that he managed and knew the stock and sector well.

On the basis of that information, Lyttleton instructed his asset managers to purchase 120 Call Options in Cairn Energy ahead of the public announcement regarding a the drilling results. Evidently the information was not as positive as first reported, therefore the price of the stock never increased to a level where the option become profitable.

Both these stocks were at placed on BlackRock’s restricted trading list upon portfolio managers receiving what in their judgement amounted to price sensitive inside information concerning the stocks. This measure prevents Blackrock from dealing in the specific stocks whilst they are inside and the information has not been made public. Lyttleton, by virtue of the fact he held these stocks in his Blackrock managed funds at the relevant time, was able to discover and act on inside information about the suspect stocks either by working on deals concerning the stocks or by being party to conversations conducted by his colleagues.

BlackRock’s personal account dealing policy required Lyttleton to declare personal trading accounts he or his immediate family held. Whilst he did inform them of a number of accounts, he failed to disclose that Huduno had a trading account at Banque Heritage or seek pre-trade clearance for any of his trading in EnCore or Cairn.

As part of the investigation, the FCA with Law Enforcement support executed a search warrant at Lyttletons home address on 30 April 2013. Lyttleton was arrested and interviewed about this trading. Addresses were also simultaneously searched in Switzerland.

As part of the search various digital devices were seized from Lyttleton. A review of this material identified a mobile phone registered to Lyttleton.  Communications data obtained for this device demonstrated timely and relevant contact between Lyttleton and his asset managers when all the trading was ordered. This was further supported by incriminating text messages concerning the trading in Cairn between Lyttleton and his asset managers.

During all interviews with the FCA, Lyttleton made no comment to all questions.

Two further mobile phones were also recovered from Lyttleton, one of which was an unregistered mobile phone, the other registered in a false name and address. Both devices contained only one contact number, this same number was assigned to false names of ‘Fred’ and ‘George’. Overseas enquiries established this number was registered to his Swiss asset manager.

During the relevant period, it was established that Lyttleton made a number of large cash withdrawals totalling £160,000 from his London based bank accounts. Following a review of text messages on Lyttletons mobile phone it was further established that these large sums of money were withdrawn for the specific purposes of making payment in cash to his asset managers as opposed to sending electronic payments via the banking system.

On 2 November 2016 Mark Lyttleton pleaded guilty to two counts of insider dealing, contrary to section 52(1) of the Criminal Justice Act 1993. ​​​​​​​​​​​​​​

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

PlanetCompliance © 2019. All rights reserved. | Newsphere by AF themes.