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City regulator takes out court injunction to deter trader Samuel Kahn from further market abuse
The Financial Services Authority (FSA) has fined the stock market trader Samuel Nathan Kahn £1.09m for share ramping just three years after it bankrupted him for his part in a "boiler-room" scheme.
But despite abuses that included impersonating share buyers and artificially inflating share prices, the regulator said there was not enough evidence to secure a criminal conviction. Kahn has agreed to pay the fine.
In an admission that prosecutions for insider trading are difficult to obtain, the FSA instead applied for a high court injunction that restrains Kahn from committing further market abuse. If he commits further abuses, he could therefore face jail.
Kahn, 40, whose address is in Salford, was first investigated by the FSA for his involvement in overseas boiler room activities.
In October 2007, he admitted liability for claims of £3.7m from about 800 UK investors. But he then put himself into an individual voluntary arrangement (IVA) and so avoided paying out.
In 2008 the FSA made Kahn bankrupt so that it could claim the full amount he owed to investors against his estate.
The bankruptcy failed to halt Kahn's activities. In what the FSA called a "month-long campaign of market abuse" in March 2010, Kahn inflated the share price of a small company, Global Brands Licensing (GBL), trading on the Plus stock exchange.
According to the FSA, Kahn bought large amounts of stock in GBL at 2p a share, then impersonated other traders to make it appear that there was genuine interest in the company. His activity helped to more than double the GBL share price to a high of 5.25p within four weeks.
The FSA investigation found that Kahn manipulated 85% of the buy trades and 91% of the sell trades of GBL for his own financial benefit, as well as to facilitate tax relief fraud and boiler-room activities.
"Kahn orchestrated and controlled the vast majority of the trading in GBL's shares in March and April 2010, disguising his involvement in the scheme by repeatedly impersonating other people when placing orders to trade in GBL's shares and co-ordinating trading conducted by third parties," the FSA said.
The profits he made from this trading were withdrawn from a third party's bank account at Kahn's instruction and delivered to him in cash, the FSA found.
The rogue trader also impersonated staff at a bona fide charity so that he could take advantage of tax relief, the regulator said. But his plans fell apart when the Plus exchange suspended trading in GBL on 30 April 2010.
The injunction the FSA has obtained against Kahn is the first of its kind obtained by the regulator. "The FSA views Kahn's conduct as particularly serious due to his prior misconduct and previous action taken against him by the FSA. The FSA will not tolerate this type of repeat behaviour and will use all of our powers to ensure credible deterrence," said Tracey McDermott, acting director of enforcement and financial crime at the FSA.
But some experts said the watchdog should focus on stamping out more mainstream market abuse, which its own data shows remains a possibility in roughly one third of all UK takeovers.
Simon Morris, of the law firm CMS Cameron McKenna, said: "This is a first for FSA – an injunction to halt continuing market abuse and a sky-high fine calculated on the new punitive basis. However, this is a typical case of a fringe operator flouting the rules.
"Until FSA digs into mainstream insider dealing – which it has previously claimed to be prevalent, especially in the new issue market – the risk remains that the City will not take the message seriously."