Beware of IT Guys

A listed company should have the policy of prohibiting certain employees from dealing in the company shares during the "blackout period" prior to results announcement because they are likely in possession of unpublished price sensitive information. Such employees usually comprise all directors and senior management as well as staff carrying out sensitive functions like finance, company seretary, etc. However, IT people may be missed out.

FSA recently fined John Shevlin £85,000 for market abuse. He was employed as an IT technician at the Body Shop International plc ("Body Shop"). On 10 Jan 2006 he established a short position equivalent to 80,000 Body Shop shares through a Contract for Difference ("CFD"), in effect betting that the share price would fall. This trade was made on the basis of inside information. He obtained the inside information by improperly accessing confidential emails which had been sent or received by senior Body Shop executives in connection with the company's Christmas trading announcement. The emails contained details of Body Shop's Christmas trading results and a draft announcement that the Body Shop had underperformed expectations.

Shevlin closed out his CFD position on 11 January 2006 after Body Shop announced its Christmas trading results to the market and made a profit of £38,472. He even borrowed £29,000 (more than his annual salary) to effect the trade.

FSA finds there is cogent and compelling circumstantial evidence against Shevlin, including that:

• He was able to log into the email accounts of certain senior executives from their computers, given that it would have been in the name of the account holder, such access is unlikely to be traceable as being by Mr Shevlin;
• He arranged substantial finance on an urgent basis to enable him to effect the CFD trade before the surprise announcement;
• He placed the CFD trade on the day before the announcement and was keen that his trade took place on that day;
• His CFD trade was of a considerable size, one which accounted for approximately 26.7% of the trading volume in that stock on that day;
• His CFD trade was significantly larger than any CFD he had previously traded. The underlying value of the trade was £213,536 which represented more than double Mr Shevlin's net assets;
• The level of financial risk undertaken by Shevlin was much higher than he had undertaken on previous trades and was such that it could have resulted in serious financial hardship if the trade had gone against him.

As a result, FSA does not accept Shevlin's assertions that he based his trading strategy on information obtained by research or analysis using public information; instead, his CFD trade was based on inside information obtained from the computers of Body Shop's senior executives.