Cum-ex, or dividend arbitrage trading, has been attracting headlines across the globe for some time, yet UK regulators had not, to date, imposed any sanctions against individuals or corporates who they say have been involved in wrongdoing associated with the trading activity.
Neil Williams, solicitor in Gherson’s white-collar crime department was asked to comment on the issue by Thomson Reuters in a recent article.
The details of the Final Notice handed to Sapien highlight the focus of the FCA on the regulatory failings of Sapien, whilst at the same time providing a forum for the FCA to detail their views on historical cum-ex trading generally. In this case, the trading was undertaken on behalf of clients of the Solo Group, and was centred around trading in Danish and Belgian markets. The Danish in particular have been notable in their pursuit of companies and individuals who they say were involved in wrongful trading, and have issued recovery proceedings in multiple jurisdictions. One such case was due to be heard in the Commercial Court in London, with over 100 defendants named in the matter. It had the potential to be one of the largest trials in English civil law history, however a preliminary ruling dismissed the case on the basis that the UK courts were not a forum for enforcement of foreign tax laws. Leave to appeal the decision has been granted, so there may well yet be a twist in this tale.
Whilst the Sapien Final Notice does serve to highlight the position of the FCA in respect of the type of trading they say breaches UK laws and regulations, it is not a final determination on the issue. This may yet still be something which the High Court will consider, depending on the appeal.
This raises questions as to how UK enforcement agencies can progress any actions against individuals for alleged breaches of UK laws and regulations relating to Danish cum-ex trading. A recent claim for Judicial Review brought by individuals caught up in UK regulatory proceedings succeeded in bringing a stay to those matters, pending a determination from the Commercial Court. The judges considered that the regulatory proceedings would be assisted by the judgment in the commercial courts in determining what, if any, breaches had occurred. In the absence of such a ruling at this time, the position remains unclear.
A further complication arises from the fact that the Danish have recently issued indictments against individuals they say were involved in fraudulent trading. If asked, the UK courts may well decide that if a decision from the commercial courts on the issue of liability is not forthcoming, then the outcome of domestic criminal proceedings in Denmark will be the next best option. Whatever happens, the decision on how best to proceed by UK regulators will not be an easy one, and may not be a decision that is entirely in their own hands.
What is clear from the Sapien announcement is that compliance failings are well within the sights of the regulators, and may well be the short terms focus in its cum-ex investigations. Their cards are clearly on the table, and companies or individuals who may have concerns over potential exposure to scrutiny would be well served to seek expert legal advice.
Gherson’s white-collar crime team comprises individuals who have experience in dealing with internal investigations and fraud allegations, and can therefore offer insightful and expert advice. Join Gherson’s mailing lists to stay connected with the latest on this story or alternatively follow us on twitter.
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.
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