Selective Disclosure by Analyst

We've heard about cases where senior management of listed companies selectively disclosed non-public material information to equity analysts. The same kind of misconduct would also be done by analysts.

FSA recently fined Roberto Casoni, a former equity analyst, £52,500 for deliberately disclosing his valuation methodology, his recommendation and target price to external parties prior to research publication.

Casoni was a research analyst for Citigroup's Global Equity Research (Citigroup) in London, where he was head of the Italian small-mid cap team whose areas of coverage included the Italian leasing sector.

During late 2005 Casoni became interested in the Italian leasing and factoring bank, Banca Italease (BI). By Jan 2006 he was considering using a different method to that normally used to value companies in the Italian leasing sector to value BI.

On 9 Jan Casoni began the internal Citigroup process of arranging for Citigroup's Stock Steering Committee (SSC) to consider his publication of research on BI with an intended publication date of 20 Jan. His draft report showing a target price of €35 was circulated to the SSC on 18 Jan and at a meeting at 10am on 20 Jan was cleared for publication.

Citigroup initiated coverage on BI on Monday 23 Jan at 5:40pm with a buy recommendation, with medium risk and a target price of €39 per share (BI had been trading at €25.70).

In the period between beginning the process for gaining approval for his research and its publication, Casoni was in contact with a number of clients about different elements of his research:

• On 12 Jan he emailed a fund manager at Firm B, who held a large position in BI stock, saying "Itaplease a bomb". This contact continued and included Casoni inviting him to consider his model for BI and discussed his valuation methodology with the client on 16 Jan and later meeting with and showing the client a copy of his research on 20 Jan following its approval that morning;
• On 13 Jan he contacted one fund manager client at Firm A by email discussing some of his analysis and followed this up with an email on 23 Jan, following approval of his research, but ahead of publication, saying that "Banca Italease is still a strong buy, I initiate tomorrow with a +50 pc upside;
• On 13 Jan he emailed a draft spreadsheet of the valuation model for BI to a fund manager at Firm C who was knowledgeable about BI and they compared valuation models;
• On 16 January emailed the draft spreadsheet to a fund manager at Firm D, this contained a valuation and his valuation methodology.

By engaging in the above contacts, Casoni allowed the recipients the opportunity to pre-empt the conclusions of the published research ahead of the rest of the market. However, none of the recipients of Casoni's information traded in the shares of BI as a result of having received it! (Oh really?)