More tough action from the FSA – time to stop playing games

Nicholas Kyprios, European head of credit sales at Credit Suisse, has been fined £210,000 by the Financial Services Authority for misuse of information being treated as insider information.

Credit Suisse was acting on behalf of Liberty, an American telecoms company targeting the acquisition of Unitymedia, a German television company. In preparation for the deal, Mr Kyprios was wall-crossed with regard to a proposed £2.5 billion bond issue by Unitymedia. He was instructed that this was inside information, which he should not share with anyone outside of Credit Suisse except for five pre-approved investors who he was also permitted to wall-cross.

However, Mr Kyprios indirectly but deliberately (for example, by inviting guesses and indicating their accuracy) revealed information about the deals to two fund managers, who were not part of the pre-approved five and had not agreed to be wall-crossed. In fact he invited them to engage in a guessing game of charades.

In its Final Notice, the FSA found that this breached Principles 2 (skill, care and diligence) and 3 (market conduct) of the Statements of Principles for Approved Persons [see Notice para 7]. In addition to the specific misuse of the information, the FSA noted that Mr Kyprios was responsible for ‘setting the tone’ for his department. He had also acted in direct breach of Credit Suisse’s own policies [see Notice paras 23 – 29].

The FSA regarded the appropriate penalty for the breaches as £300,000, with a 30% discount to £210,000 for early settlement [see Notice paras 36 – 47]. Mr Kyprios is also reported to have been docked 50% of his 2011 bonus by Credit Suisse, where he remains employed.

The penalty is considerably less than the £7.2 million fine issued to David Einhorn and Greenlight Capital, following a finding of market abuse for use of inside information in January 2012 (see http://www.fsa.gov.uk/library/communication/pr/2012/005.shtml)

Mr Kyprios’ actions were not considered market abuse because:

• The majority of Unitymedia-related instruments were being traded on the Republic of Ireland market. As such, they were not ‘qualifying investments’ for the purposes of s118 Financial Services & Markets Act 2002. [see Notice para 20].

• The Unitymedia bonds which did qualify as s188 qualifying investments were being traded ‘at or close to their call levels’. This meant that the announcement of the Unitymedia bond issue ‘could not and did not significantly impact the price of those instruments’. As such, it could not be considered ‘inside information’ constituting market abuse [see Notice para 21]. However, it should be noted that the information (once announced) did in fact significantly affect the price of the Unitymedia bonds which were not qualifying investments [see Notice para 22].

All in all, in this case, the consequences could have been much more serious and an insider dealing or market abuse allegation could easily be made in very similar situations.

Corker Binning is a law firm specialising in fraud, regulatory litigation and general criminal work of all kinds. Visit our website for more information about how we can help you with FSA investigations or fraud matters or call us on 0207 353 6000.