Barclays Capital

Two Dresdner Kleinwort traders were censured for market abuse by the United Kingdom’s Financial Services Authority. According to the FSA, Darren Morton had access to inside information about a possible new issue of Barclays floating-rate bonds in March 2007 that would offer more favorable terms than the last issue.

The FSA says that Morton shared what he knew with trader Christopher Perry and the two men sold the whole holding of the previous issue held by K2, a Dresdner investment vehicle with a portfolio containing $65 million of Barclay’s FRNs. That same day, a new issue was announced, and counterparties that bought the bonds from K2 lost some $66,000.

Rather than accept the FSA’s offer to settle and receive a fine and/or penalty at a lower amount, the two men took their case to the FSA’s tribunal authority. The regulatory committee found that the two men did not realize that they were engaging in market abuse.

While the two men were censured, they were not fined and their right to work was not challenged. The FSA cited a number of factors to explain the sanction chosen:

• The two did not make money personally from the trade.
• They have undergone market abuse training.
• No one gave them proper guidance.
• Their compliance and disciplinary records are clean.

FSA enforcement director Margaret Cole, however, noted that insider dealing is cheating regardless of the market. She promised that future offenders will be slapped with harsher sanctions.

Related Web Resources:
The FSA and the intriguing case of Dresdner Kleinwort bond managers, Guardian.co.UK, October 7, 2009
SA censures Dresdner traders over market abuse, MarketWatch, October 7, 2009
Financial Services Authority
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Barclays Bank PLC and a former proprietary trader for Barclays’ U.S. Distressed Debt Desk agreed to pay a total of $11.69 million to settle Securities and Exchange Commission charges they traded on inside information received while on the creditors committees for six bankrupt companies. Neither admitted or denied the SEC’s claims.

The SEC filed an action in a U.S. District Court in New York claiming the bank and its former agent illegally traded millions of dollars of bond securities while aware of material nonpublic information received through six bankruptcy creditors committees. The six bankrupt debtors were Galey & Lord Inc., Pueblo Xtra International Inc., Desa International Inc., Archibald Candy Corp., Conseco Inc., and United Airlines.

The SEC charged that, for example, the defendants made 82 illegal trades in notes and other securities of United Airlines. In some instances “big boy letters” were issued, but neither Barclays nor its trader ever revealed the inside information to the counterparties, according to the SEC. (A “big boy letter” is an agreement in which the buyer of securities agrees not to sue the seller while acknowledging the seller may possess confidential information the buyer does not have.)

Articles Posted in Barclays Capital

Two Dresdner Kleinwort Traders Censured for Market Abuse by UK’s FSA

Barclays Bank and its Former Trader to Pay Over $11 Million To Settle SEC Insider Trading Claims