Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

FSA Loses Minmet Insider Trading Case

pointed me to a very interesting

by the Financial Services and Markets Tribunal overturning
an insider trading decision of the Financial Services Authority in the
United Kingdom.

The most damaging part of the tribunal’s decision is towards the
end when it states:

We have kept in mind that the burden of proof lies on the Authority, and
the standard of proof (the balance of probability) must take into account
the gravity of the allegation made. But our decision in the applicants
favour does not depend on the burden of proof. On consideration of the
whole of the evidence we are satisfied that there was not a telephone
conversation between Mr Nolan and Mr Baldwin on 29 July 2003, and are
satisfied that WRT’s trading in Minmet and Tiger shares was innocently

Usually when courts and tribunals acquit somebody they are quite happy to
take shelter under the assertion that the prosecution has not met
the standard of proof. Here the tribunal goes beyond this to assert that
the accused have proved that they are innocent. It is difficult to imagine
a more comprehensive defeat for a regulator.

Interestingly, the tribunal avoids even a suggestion that the main
prosecution witness was lying. Even while stating categorically that they
preferred the evidence of the accused to that of the key prosecution
witness, the tribunal states:

We found no reason to doubt the good faith of any of the witnesses, who
we considered were all doing their best to assist us.

The experts that the FSA relied on are also treated kindly but the tribunal
does find that the experts were “inappropriately constrained” by
the remit that the FSA gave them. At the end of it all, only the FSA
comes out as the loser in this decision.


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