It may have failed to prevent the recent meltdown in the financial markets, but now the FSA is fighting back. It’s just slapped an £85,000 fine on John Shevlin, a former IT technician at the Body Shop who has been found guilty of making nearly £40,000 by short-selling his employer back in 2006 – immediately before the release of a supposedly confidential profit warning.
The FSA isn’t exactly a fearsome operator when it comes to market abuse cases. Take the recent HBOS investigation, where it singularly failed to prove that the sudden drop in the share price was down to naughty traders spreading malicious rumours about the bank’s financial strength (presumably because the rumours turned out to be true). Yesterday, it admitted that it had failed to resolve a single market abuse case in the whole of 2007, while the money it levied from fines dropped from £15m to £4.5m (that's barely enough to cover Ron Sandler's salary).
So it’s remarkable that it’s actually managed to bring a miscreant to justice – particularly since (by its own admission) it couldn’t technically prove anything. ‘The FSA acknowledges it is unable to demonstrate conclusively Mr Shevlin's access to inside information at the Body Shop,’ it said today – but insisted there was ‘cogent and compelling circumstantial evidence’ that he used his position as an IT technician to log into private emails and access insider information, and then borrow £29,000 to take a short position over 80,000 Body Shop shares. Sure enough, when the profit warning came out the share price plunged – and Shevlin made nearly £40,000 in a day. Nice work if you can get it.
In some respects, Shevlin was unlucky. After all, this sort of thing may be going on all the time in the City, but the FSA never usually manages to make a case stick. On the other hand, he was also pretty stupid. He claimed that he’d just made a savvy prediction based on the over-valued share price. But despite this investment expertise, he’d only ever made two trades before in his life – both in the Body Shop. And this was a huge bet: he borrowed more than his annual salary, took a position worth twice as much as his entire net assets, and accounted for a quarter of all the shares traded that day. Plus he did it all in his own name, in his own company, the day before a profit warning. Even the FSA couldn’t miss an open goal like that...