In a settlement reached with the Financial Services Authority (FSA), Steven Harrison, a former hedge fund manager, agreed not to act as a fund manager or trader for 12 months and to pay a £52,500 fine.
This is the first such case the FSA has brought concerning the credit markets and sends a clear message that the FSA is determined to tackle market abuse in all the markets it regulates. On 28 September 2006, while a portfolio manager for Moore Credit Fund, Mr Harrison was provided with inside information about the refinancing plans of Rhodia SA (Rhodia) by Credit Suisse. Mr Harrison accepts that he was given inside information although he failed to recognise this at the time. Upon receipt of the information, Mr Harrison instructed a colleague to buy 2 million Rhodia 10.50% Senior Notes due 2010 (the 10.50 bonds) on that day.
On 2 October 2006 Rhodia announced, as part of its refinancing programme, it would be calling in some of its more expensive debt, including the 10.50 bonds. In due course Moore Credit Fund tendered the 10.50 bonds that had been purchased on 28 September 2006 and made a profit of approximately €44,000.
Margaret Cole, FSA Director of Enforcement, said: "This case highlights the importance of city professionals taking care to recognise inside information when they see it and not to misuse it. Hedge fund managers and people in similar roles are often legitimately provided with inside information in the course of their business. The FSA expects people entrusted with such responsibility, in the credit markets as much as in any other regulated markets, to observe high standards of conduct and not to take advantage of their privileged access to inside information. The consequences for Mr Harrison of not doing so are that he has lost the privileges of carrying on his profession as a fund manager and a trader for a period."
The FSA has found that Mr Harrison's conduct was not deliberate and he made no direct personal profit from these activities. He co-operated with the FSA's investigation and has qualified for an early settlement discount on his fine which otherwise would have been £75,000. The very significant impact of the restrictions which Mr Harrison has agreed to for twelve months has been taken into account in setting the penalty.