FCA's decision notice on Conor Foley and the Upper Tribunal's findings on confidentiality

FCA's decision notice - Conor Foley - background and summary

Conor Foley, ex-CEO of WorldSpreads Limited ("WSL"), was found by the Financial Conduct Authority to have committed market abuse, as published in its decision notice of 14 January 2020 (the "Decision Notice"). WSL was a financial spread-betting company whose parent, WorldSpreads Group plc ("WSG"), was quoted on AIM. Foley was also the CEO of WSG. 

Foley has referred the FCA's Decision Notice to the Upper Tribunal where he and the FCA will each present their case. The Upper Tribunal will determine what, if any, is the appropriate action for the FCA to take, and will remit the matter to the FCA with such directions as the Upper Tribunal considers appropriate for giving effect to its determination. Accordingly, the proposed action outlined in the Decision Notice will have no effect pending the determination of the case by the Upper Tribunal.

Pending the decision of the Upper Tribunal, Foley applied for directions that the Decision Notice be kept confidential. However, his applications failed.

Key lessons

The key takeaways are as follows:

• With regard to the FCA's Decision Notice:
  
  • issuers of financial instruments which are subject to the market abuse regime must declare material internal hedges (i.e. hedges made by the companies with executives and employees); and
  • although market manipulation is sometimes difficult to prove, the inference may be stronger where the alleged market manipulation devices (in this case, spread bets on shares) are employed by the issuer's own executives;
•  With regard to the Upper Tribunal's findings on confidentiality:
  • there is a strong presumption of open justice and transparency, therefore, privacy applications will be met with substantial resistance. The fact that the alleged wrongful conduct occurred some years back and there is no chance of future harm does not mitigate this presumption;
  • to defeat the presumption above, objective (as opposed to subjective) evidence should be given, even if such evidence may be difficult to obtain; and
  • the Upper Tribunal may hypothesise about the likely consequences of publicising decision notices based on a variety of factors, including their impressions of the applicant and any relevant third parties.

The FCA's Decision Notice

The FCA's findings against Foley in the Decision Notice are, in summary:

Materially misleading admission documentation

When WSG was floated on AIM in August 2007, WSG's admission documentation was found to be materially misleading as:

• it did not disclose the fact that some WSG executives had made significant loans to WSG and its subsidiaries (the "Internal Loans"); and 

• it did not explain that some of WSG's subsidiaries hedged considerable trading exposures internally with company's own executives (the "Internal Hedging").

These issues were highly material to the flotation of WSG. In particular, apart from the fact that accurate financial information should be disclosed, the FCA assert that the Internal Hedging should have been declared to investors because:

• it created inherent conflicts of interest whereby the directors involved sought to make personal profits against selected trades made by the subsidiaries' clients, potentially at the expense of the subsidiaries;

• the Internal Hedging comprised related party transactions which should have been disclosed in the annual accounts;

• the ability for directors to make personal profits by participating in the Internal Hedging should have been accounted for as part of directors’ benefits and remuneration; and

• prospective investors would have wanted to know about the Internal Hedging because it may well have been viewed by them as incompatible with WSG’s declared approach of adopting a conservative approach to risk management.

Unauthorised placing of spread-bets to effect share purchases

The FCA claim that between December 2009 and October 2011, Foley became aware of certain investors' desire to sell large blocks of WSG shares. As there were no natural purchasers for these shares, and being concerned about the effect that these potentially large, unfulfilled sell orders would have on WSG’s share price, Foley used the trading accounts of two WSL clients without their knowledge to place large spread-bets on WSG shares. This was intended to prevent WSG's share price from dipping.

These spread-bets were hedged by WSL through CFDs (with a margin rate of 100%) purchased from third-party brokers who, in turn, hedged the CFDs by purchasing WSG shares in the market. 

Market abuse contraventions

The FCA therefore claim that Foley:

• engaged in market abuse by disseminating information that gave a false and misleading impression of WSG’s financial position, knowing that such information was false and misleading, by failing to declare the Internal Loans and the Internal Hedging, contrary to s 118(7) of the Financial Services and Markets Act 2000 ("FSMA");
• gave false or misleading impression as to the demand for WSG shares through the spread-bets, contrary to s 118(5)(a) of FSMA;
• employed manipulating devices through the spread-bets in order to deceive the market, contrary to s 118(6) of FSMA; and
• lacked fitness and propriety as he:
  
  • deliberately and dishonestly engaged in market abuse contrary to s 118(7) FSMA by knowingly permitting false or incomplete information to be included in WSG's admission documentation, failing to declare the Internal Loans and the Internal Hedging, and accurately describe WSG and its subsidiaries' credit policy in the annual accounts, despite his being an approved person;
  • engaged in the use of fake client trading accounts and unauthorised use of actual trading accounts to perform the Internal Hedging;
  • deliberately and dishonestly engaged in market abuse contrary to s 118(5) and 118(6) FSMA, despite being an approved person; and
  • procured for himself from WSL unauthorised loans.

Application to the Upper Tribunal

Foley has subsequently referred the FCA's Decision Notice to the Upper Tribunal. It is important to emphasise that unless and until the Upper Tribunal upholds the FCA's findings and assertions, those matters have not been proven.

The Upper Tribunal's decision on confidentiality

Pending the decision of the Upper Tribunal, Foley applied for:

• a direction to prohibit the FCA from publishing the Decision Notice and any other information relating to the proceedings; and
• a direction that the register of references maintained by the Upper Tribunal contain no particulars of his reference (collectively, the "Privacy Applications").

Foley's arguments

Foley's main contentions in support of the Privacy Applications were as follows:

• Foley is currently pursuing a career in academia at Trinity College, Dublin, as a part--time PhD student and lecturer. Publication of the decision notice and particular reference would be unfair to him as Trinity College would not renew his teaching role. Such termination of his employment would lead to severe financial hardship, as his emoluments of approximately €14,000 per annum are his sole source of income and he has no significant other liquid assets; and 
• a significant period of time has elapsed since the alleged wrongful conduct took place, he no longer works in a regulated industry and has no intention to do so in the future. Consequently, there is no potential threat to consumers if the decision notice were not published.

The FCA's arguments

The FCA's main contentions against the Privacy Applications were as follows: 

• the fact that the events which are the focus of the allegations occurred some years ago does not mean that it would be unfair to Foley or not in the public interest to publish the decision notice; 
• the presumption of open justice should apply, and it is irrelevant that there is no further regulatory risk; and
• there is no evidence to show that Trinity College, Dublin would employ the steps that Foley claimed. In fact, the evidence shows that Trinity College maintains a staff disciplinary policy which has a stated objective to ensure consistent and fair treatment for all staff and to ensure compliance with natural justice.

The Upper Tribunal's findings

Although the Upper Tribunal accepted that Foley's financial position was precarious, it found that he had not provided cogent and compelling evidence of how unfairness might arise from publication and how he would suffer a disproportionate level of damage.

Foley was unable to support his subjective beliefs about Trinity College refusing to renew his teaching contract by reference to any third party or other objective evidence. In any case, the objective evidence reveals that there is no significant likelihood that Foley's contract would not be renewed because of the publication of the decision notice. This is because:

• due to Foley's low status and profile within Trinity College and his employment status, it is unlikely that the renewal of his contract against the background of the Decision Notice would have any material effect on Trinity College's reputation;
• further, when Foley was employed by Trinity College, there was already considerable public and media interest in the circumstance of him leaving WSG; 
• Foley would have the opportunity to put forward his side of the story, after the Decision Notice is published, before his contract comes up for renewal;
• it is likely that Trinity College would recognise that the Decision Notice is effectively superseded by the Upper Tribunal proceedings and the Upper Tribunal has to assess all the facts and circumstances afresh and determine what is the appropriate action to take in the light of its findings. The proceedings are not an appeal against a definitive finding, and it would be expected that Trinity College, one of whose stated values is to provide a liberal environment, would recognise that position and let the legal proceedings take their course.

Further, the Upper Tribunal recognised that: 

• even if Foley's contract is not renewed, his academic career would not end; 
• despite Foley's precarious financial situation, he seems to be resourceful in dealing with these challenges; and
• there is a strong presumption in favour of open justice and transparency of decision-making, which has not been defeated by any of the matters raised by Foley. 

Accordingly, the Upper Tribunal refused to grant the Privacy Applications.