The perils of email were highlighted, yet again, in the recent decision by the Financial Services Authority ("FSA") to fine Sean Pignatelli £20,000 for failing to address his mind to whether or not an email that was forwarded to him and three others, might have contained "inside information". In fact, the email didn't contain any inside information, but the FSA took the view that Mr Pignatelli had failed to take heed of the "warning signals".
The email Mr Pignatelli, a US equity salesman at Credit Suisse First Boston (Europe) Limited received, was from an analyst at CSFB in New York with the subject header: "Good tidbit to pass around".
The "tidbit" was a forwarded email that had been sent by the analyst to a third party which said:
"Heh bud, I think you care on this one, so quick heads up ahead of tomorrow's analyst meeting.
Just sat down with Tobin hear in Paris. Sounds like they're going to bring down 2005 EPS guidance tp $1.98-2.02 (vs current consensus f $2.06). They're going to talk about DES share cack up at 58-59%, but spend (mostly R & D) goes up since they made those 4 acq'ns this year (AST, Cryo, Rubicon, Trivascular), three of which came with burn.
Don't want to get into trouble....keep btwn us for now".
Having received this email, Sean Pignatelli then phoned various clients with the information and some of whom sold shares based on his advice. The FSA felt that in his calls to clients he "embellished" the information and made it sound as if it was inside information.
The FSA took the view the warning signals were the reference to a "quick heads up" and the final words: "Don't want to get into trouble....keep btwn us for now". In his defence Sean Pignatelli explained that because it was a group email, he just assumed it was a "view" rather than insider information.
According to the FSA's Final Notice, in failing to "turn his mind" to whether or not the email contained insider information and in failing to discuss the matter with his senior manager or compliance, he was in breach of Principles 2 and 3 of the FSA's "Statements of Principle for Approved Persons".
Principle 2 provides that "an approved person must act with due skill care and diligence in carrying out the controlled function" and Principle 3 provides that an approved person "must observe proper standards of market conduct".
It should be said that it's clear from the Final Notice (which is available in PDF format from the FSA's website) that the FSA felt that although he used "sales patter" to embellish the information they didn't think Mr Pignatelli had a positive belief it was inside information nor did it think he had deliberately conveyed the impression to clients that it was inside information. It was more to do with the fact that he didn't refer the matter to compliance.
CSFB had already dismissed Mr Pignatelli in 2005 for serious misconduct having concluded that he has acted in breach of the company's compliance procedures, although according to the FSA he was pursuing the matter further.
Comments