Final Notice

On , the Financial Conduct Authority issued a Final Notice to Conor Martin Foley

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FINAL NOTICE

IRN: CMF01051 (inactive)

Date: 7 September 2020

1.
ACTION

1.1.
For the reasons given in this notice, the Authority hereby:

(1)
publishes a statement of Mr Foley’s misconduct (a “public censure”),

pursuant to section 123(3) of the Act, for engaging in market abuse

(dissemination, manipulating transactions and false or misleading

impressions); and

(2)
makes an order, pursuant to section 56 of the Act, prohibiting Mr Foley

from performing any function in relation to any regulated activities carried

on by an authorised or exempt person, or exempt professional firm.

1.2.
The public censure takes the form of this Final Notice which will be published on

9 September 2020 on the Authority’s website.

1.3.
By a Decision Notice dated 14 January 2020, the Authority notified Mr Foley that

it had decided to impose on him a financial penalty of £658,900 for engaging in

market abuse, and make a prohibition order in the terms set out at paragraph

1.1(2) above.

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1.4.
Mr Foley referred the matter to the Upper Tribunal (Tax and Chancery Chamber)

(“the Tribunal”) on 2 March 2020. On 2 September 2020, Mr Foley withdrew his

reference with the Tribunal’s consent. Mr Foley has provided the Authority with

additional information regarding his financial circumstances since making the

referral.

1.5.
The Authority considers that Mr Foley’s market abuse merits a financial penalty

pursuant to section 123(1) of the Act. Had Mr Foley not provided verifiable

evidence that the imposition of a financial penalty of any amount would cause

him serious financial hardship, the Authority would have imposed on him a

financial penalty of £658,900.

1.6.
Accordingly, for the reasons set out below, the Authority hereby imposes a public

censure in place of a financial penalty, and makes a prohibition order, pursuant

to section 56 of the Act, in the terms set out at paragraph 1.1(2) above.

2.
SUMMARY OF REASONS

2.1.
Mr Foley was the Chief Executive Officer (“CEO”) of WorldSpreads Limited

(“WSL”), a financial spread-betting company, and WorldSpreads Group plc

(“WSG”), WSL’s holding company, which was quoted on AIM. He held the

significant influence functions of CF1 (Director) and CF3 (CEO) at WSL and was

the majority shareholder of WSG.

2.2.
In August 2007 WSG floated on AIM. Mr Foley was closely involved with drafting

and approving the formal documentation that WSG was obliged to prepare for

the purposes of its flotation (“Admission Documentation”) and he was aware of

his and WSG’s obligations to provide accurate information to the market in these

documents. However, despite this obligation, WSG’s Admission Documentation

was materially misleading in that:

(1)
it did not disclose the fact that some WSG executives had made significant

loans to WSG and its Subsidiaries (“the Internal Loans”); and

(2)
it did not explain that certain of WSG’s Subsidiaries “hedged” considerable

trading exposures internally with company executives (“the Internal

Hedging”).

2.3.
Mr Foley was aware of the failure to declare the Internal Loans and the failure to

declare the Internal Hedging within WSG’s Admission Documentation. Mr Foley

was also aware that WSG failed to declare the Internal Loans in its Annual

Accounts throughout the Relevant Period, and that WSG failed to declare the

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Internal Hedging in its Annual Accounts until at least 2009. He knew that this

gave, or was likely to give, a false or misleading impression to the market.

2.4.
Mr Foley thereby engaged in market abuse contrary to section 118(7) of the Act

by disseminating information that gave a false and misleading impression of

WSG’s financial position, knowing that such information was false and misleading

by failing to declare the Internal Loans and the Internal Hedging. By doing so he

deliberately misled the market.

2.5.
In addition, between January 2010 and March 2012 large Spread-Bets on WSG

shares were placed on the trading accounts of five WSL clients. The nature of the

hedging process meant that these spread-bets caused the purchase of a large

number of WSG shares from the market. The Spread-Bets on the trading

accounts of two of the five clients (Clients 1 and 3) were placed by Mr Foley

without the knowledge of these clients.

2.6.
As a director of WSG Mr Foley had a clear obligation to disclose his dealings to

the market.

2.7.
Therefore, in relation to the trading accounts of Clients 1 and 3 Mr Foley effected

transactions which gave a false or misleading impression as to the demand for

WSG shares contrary to section 118(5)(a) of the Act, and employed manipulating

devices in order to deceive the market contrary to section 118(6) of the Act.

2.8.
Mr Foley has denied using the trading accounts of these clients without their

knowledge and has claimed that he entered into secret arrangements with them

by which he would benefit from any profits made and underwrite any losses

incurred through the spread-bets taken out on their accounts. The Authority does

not accept this account.

2.9.
The transactions (placed on all five of the client trading accounts referred to in

paragraph 2.5 above) rendered statements as to WSG’s credit policy contained

in and disseminated through its Annual Accounts false and misleading. Mr Foley

thereby contravened s118(7) of the Act.

2.10. Mr Foley also lacks fitness and propriety for the following reasons:

(1)
he deliberately and dishonestly engaged in market abuse contrary to

section 118(7) of the Act, by knowingly permitting false or incomplete

information to be included in WSG’s Admission Documentation, and by

failing to declare the Internal Loans and the Internal Hedging and to

accurately describe WSG and its Subsidiaries’ credit policy in the Annual

Accounts, despite having been, during the Relevant Period, an approved

person;

(2)
the Internal Hedging overseen by Mr Foley involved the use of fake client

trading accounts and the unauthorised use of actual trading accounts;

(3)
he deliberately and dishonestly engaged in market abuse contrary to

sections 118(5) and 118(6) of the Act, despite having been, during the

Relevant Period, an approved person;

(4)
between April 2008 and February 2012, he procured for himself from WSL

unauthorised loans, as found in a judgment of the High Court given in

October 2014 and pursuant to which he was ordered to pay WSL

£309,321.

2.11. The Authority considers that a financial penalty of £658,900 would have been

the appropriate financial penalty to impose on Mr Foley. But having taken into

account that Mr Foley has provided verifiable evidence that the imposition of a

financial penalty of any amount would cause him serious financial hardship, the

Authority hereby imposes a public censure in place of a financial penalty,

pursuant to section 123(3) of the Act, and makes a prohibition order, pursuant

to section 56 of the Act, in the terms set out at paragraph 1.1(2) above.

2.12. Any facts or findings in this notice relating to “directors”, “senior executives”,

“executives”, “members of staff” or “professional advisers” should not be read as

relating to all such persons, or even necessarily any particular person in that

group.

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice.

“the Act” means the Financial Services and Markets Act 2000;

“AIM” means the Alternative Investment Market;

“Annual Accounts” means the Annual Accounts of Subsidiary A, WSL or WSG

prepared in accordance with International Financial Reporting Standards;

“the Authority” means the body corporate previously known as the Financial

Services Authority and renamed on 1 April 2013 as the Financial Conduct

Authority;

“Contract for Difference” or “CFD” means a contract between two parties (a CFD

provider and a client) to pay each other the change in the price of an underlying

asset. At the expiry of the contract, the parties exchange the difference between

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the opening and closing prices of a specified financial instrument, such as shares,

without owning the specified financial instrument;

“the Decision Notice” means the Decision Notice issued to Mr Foley on 14 January

2020, available on the Authority’s website at:

2020.pdf;

“FSCS” means the Financial Services Compensation Scheme;

“(Financial) Spread-Bet” means a contract between a provider, such as WSL, and

a client which takes the form of a bet as to whether the price of an underlying

asset (such as an equity) will rise or fall. A client who spread-bets does not own,

for example, the physical share, he simply bets on the direction he thinks the

share price will move. Spread-bets are similar to CFDs except in relation to

capital gains tax and expiration dates of the contracts;

“Internal Hedging” means the practice by which some directors and members of

staff at Subsidiaries A and B decided personally to act as a hedge for (and thereby

stand behind) the financial exposure generated by selected client positions,

thereby underwriting losses and accruing profits arising from those positions in

their personal capacity. Such Internal Hedging was an alternative to (a) leaving

the position unhedged, such that the financial exposure was retained by the

provider of the position to the client, eg Subsidiary A or Subsidiary B, or (b)

hedging the risk by taking out CFDs in the same asset with third party brokers,

such that the financial exposure was transferred to a third party;

“Internal Loans” means the personal funds provided to WSG and its Subsidiaries

by certain of its directors and senior executives in September 2006;

“Related Party Transaction” has the meaning given by Financial Reporting

Standard Rule 8 as issued by the Accounting Standards Board during the

Relevant Period;

“Relevant Period” means 25 July 2007 to 16 March 2012;

“Subsidiaries” means WSL, Subsidiary A and Subsidiary B only;

“Subsidiary A” means a subsidiary of WSG;

“Subsidiary B” means a subsidiary of WSG;

“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);

“Warning Notice” means the warning notice issued by the Authority to Mr Foley

on 11 February 2019;

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“WSG” means WorldSpreads Group Plc;

“WSG’s Admission Documentation” means the formal documentation that WSG

was obliged to prepare for the purposes of its flotation on AIM in August 2007;

and

“WSL” means WorldSpreads Limited.

4.
FACTS AND MATTERS

Background

4.1.
WSL was incorporated in the UK on 15 September 2003 and regulated by the

Authority from November 2004. Its principal activity was the provision of online

trading facilities in financial markets through financial spread-betting and CFDs.

Its clients were able to invest in, hedge, or speculatively bet on thousands of

global financial instruments. By 2011, WSL had approximately 15,000 clients (of

whom typically 3,000 were active at any one time). Its clients came from across

Europe, the Middle East, Asia and South Africa. WSL’s clients were primarily retail

clients.

WorldSpreads Group Plc

4.2.
WSL was wholly-owned by WSG, a non-trading holding company incorporated in

Ireland and quoted on AIM and the Irish Enterprise Securities Market from August

2007 and May 2008 respectively. Following the disposal of Subsidiary A in

December 2009, WSL became the primary revenue generator of WSG.

4.3.
WSG’s Annual Accounts incorporated the results of WSL which, after Subsidiary

A was sold, accounted for the majority of WSG’s results. For example, based on

the figures in both WSG and WSL’s 2011 Annual Accounts, WSL’s revenue

accounted for, approximately, 94% of that of WSG.

WorldSpreads’ Expansion and Positive Growth Story

4.4.
WSG’s expansion out of Ireland, where it was founded, started in the UK through

the establishment of WSL and a network of partnerships. Throughout 2010 and

2011, WSG continued to expand rapidly into international markets, establishing

offices, and subsidiaries, across Europe, South Africa, Asia and the Middle East.

By 2011 WSL had become a mid-size spread-betting company within the UK

market partly due to business from these international offices being booked in

London.

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4.5.
From 2008, WSG’s Annual Accounts showed strong revenue growth and,

particularly from 2010, a cash-rich balance sheet. Several industry analysts

published positive research, including buy recommendations, in respect of WSG

after the publication of its 2010 and 2011 Annual Accounts.

4.6.
On 1 August 2007 WSG floated on AIM at a price of 47p; its price reached a peak

of 113.5p in May 2008. The average share price during 2010 and 2011 was 66p.

WSG’s lowest share price, of 37p, was in the last month of trading in February /

March 2012.

4.7.
WSL and Subsidiary A’s clients were able to trade through financial spread-bets

or CFDs. Spread-betting enables clients to speculate, or bet, on the movement,

up or down, of a particular asset (such as a share). Trading through a Spread-

Bet means that clients do not have to pay the full value of the underlying financial

instrument - instead, clients will deposit margin in cash to fund their trades. The

cash received by WSL in relation to their trading belonged to WSL’s clients. It

should have been received and held as client money in accordance with the rules

set out in the Authority’s Client Assets sourcebook, and therefore kept separately

from the company’s own cash as client money, subject to strict regulation and

internal policies.

4.8.
When a client of WSL or Subsidiary A took out a Spread-Bet, the risk of the

Spread-Bet would lie with the companies. To minimise the risk to themselves,

and depending on their risk management policy, WSL or Subsidiary A could have

hedged their risk, either fully or partially, by taking out CFDs in the same asset

with third party brokers. The companies used numerous third party brokers to

hedge their clients’ positions. In order to hedge with third party brokers, WSL

and Subsidiary A had to fund their broker accounts, known as margin accounts.

Third party brokers monitored these accounts and hedged only when sufficient

funds were in the account. If there were insufficient funds in these accounts,

WSL or Subsidiary A themselves would be on “margin call” meaning that WSL

would have to increase funding of these accounts.

4.9.
Mr Foley was the co-founder of WSG and CEO of both WSG and WSL. Mr Foley

became an approved person at WSL on 25 November 2004 as CF1 (Director) and

CF26 (Customer Trading), as CF3 (CEO) and CF8 (Apportionment and Oversight)

on 24 January 2006, and as CF30 (Customer) on 1 November 2007. As CEO, Mr

Foley signed off WSG’s Annual Accounts.

4.10. Mr Foley resigned from WSG and WSL on 14 March 2012.

Collapse of WSL and WSG

4.11. By 2012, due to a number of factors, albeit not apparent from their Annual

Accounts, WSL and WSG were in severe financial difficulties and not able to

continue as going concerns.

4.12. The formal insolvencies of WSL and WSG were triggered on 16 March 2012, when

the financial controller of WSL informed WSG’s board of longstanding wrongful

treatment of client money at WSL. The CFO confirmed this to the board shortly

afterwards and also that there had been misstatements in the Annual Accounts

of WSL and WSG over several years. Initial investigations by WSL and WSG

concluded that client money had been commingled with WSL’s own cash leaving

a shortfall in the funds owed to clients of approximately £13 million.

4.13. The Authority was informed, on 16 March 2012, of the irregularities in WSL’s

accounts, specifically that client money reconciliations had been deliberately

falsified and that there had been inappropriate treatment of client money for a

number of years. As a result, WSG’s shares were suspended. On 19 March 2012,

WSL was placed into the Special Administration Regime. As of January 2017, the

Financial Services Compensation Scheme had paid out £17.9 million in respect

of 3,833 claims for client money losses.

Key features of WSG’s operations at flotation

Undisclosed loans by directors and executives to Subsidiaries of WSG

4.14. Mr Foley took part in an internal loan arrangement which involved the secret

provision of funds, by certain directors to WSG and its Subsidiaries in order to

alleviate financial difficulties. These Internal Loans, which were outstanding for

several years, were never declared as such either in WSG’s Admission

Documentation or subsequent Annual Accounts despite specific requirements

that such loans be disclosed. As a result, investors were ignorant of the financial

difficulties of WSG and the subsequent obligations owed, by WSG, to its directors.

4.15. From at least the first quarter of 2006 some of WSG’s Subsidiaries were

experiencing difficulties with both their cash flows and balance sheets. These

difficulties specifically related to a lack of funds for hedging with brokers but also

included meeting the expectations of WSG’s lenders.

4.16. In order to resolve these issues, some directors of Subsidiary A, including Mr

Foley, provided personal funds to WSG and its Subsidiaries in September 2006.

Altogether, €1,625,000 was provided by directors and senior executives,

€500,000 by Mr Foley himself. The majority of these funds were held in WSG’s

bank accounts but, incorrectly, were not accounted for as loans.

4.17. Outstanding loans should be treated as liabilities in Annual Accounts and

disclosed in the tables of loans and borrowings in the notes thereto. Moreover,

any loans by directors should also be appropriately disclosed as Related Party

Transactions in the notes of Annual Accounts.

4.18. Despite this, the Internal Loans were not disclosed in the Annual Accounts

provided as part of WSG’s Admission Documentation or otherwise, nor were they

disclosed in any subsequent Annual Accounts during the Relevant Period.

Internal Hedging accounts

4.19. From before WSG’s flotation on AIM and until at least 2009 Subsidiary A and

Subsidiary B engaged in a practice described within those companies as “Internal

Hedging” by which some directors and members of staff at those companies (“the

Participants”) decided personally to act as a hedge for (and thereby stand

behind) the financial exposure generated by selected client positions, thereby

underwriting losses and accruing profits arising from those positions in their

personal capacity. Such Internal Hedging was an alternative to (a) leaving the

position unhedged, such that the financial exposure was retained by the provider

of the position to the client, e.g. Subsidiary A or Subsidiary B, or (b) hedging the

risk by taking out CFDs in the same asset with third party brokers, such that the

financial exposure was transferred to a third party. The Participants did not use

accounts in their own names for their hedging activities. Instead, they used client

trading accounts (without the clients’ knowledge), fictitious client trading

accounts and later, accounts that they specifically opened for the purpose of

Internal Hedging (known as the ‘Gamma’ accounts). In this way, the strategy

was concealed from the companies’ auditors.

4.20. One objective of the Internal Hedging strategy was to reduce external hedging

costs which absorbed a significant proportion of the companies’ available cash in

margin charges; a further objective was to enable the Participants, including Mr

Foley, to make personal profits or receive repayment of personal loans including

the Internal Loans.

4.21. The reality of Internal Hedging was acknowledged by Mr Foley who wrote in an

email, dated 11 January 2008: “Lets [sic] not fool ourselves – Gamma [an

Internal Hedging account] strips out a considerable amount of volatility on a

cosmetic basis only […] there will never be any money coming in from Gamma

losses (at least until there is an exit)” Mr Foley engaged in, and controlled,

Internal Hedging despite recognising that there were serious associated risks for

4.22. Transactions entered into by WSG’s directors as part of the Internal Hedging

were Related Party Transactions and should have been declared as such in WSG’s

Annual Accounts.

4.23. Despite this, these transactions were not disclosed in the Annual Accounts

provided as part of WSG’s Admission Documentation or otherwise, nor were they

disclosed in any subsequent Annual Accounts during the whole of the period when

Internal Hedging was carried out.

Non-disclosure
of
material
information
in
WSG’s
Admission

Documentation

4.24. WSG was admitted to trading on the LSE’s AIM on 1 August 2007 raising £5.77

million. Mr Foley knew that material information was either omitted from, or

falsified within, WSG’s Admission Documentation. Potential investors have a right

to accurate disclosure and the Authority considers that had there been accurate

disclosure within WSG’s Admission Documentation, this may have influenced

investors’ decision as to whether or not to purchase WSG shares.

The verification process

4.25. WSG was assisted in its flotation by professional advisors. This assistance

included due diligence on the company, providing guidance to WSG on both the

flotation process and its obligations under key AIM rules, and helping to prepare

both the pathfinder prospectus and final Admission Documentation. The content

of these documents was the subject of a detailed verification process. In his

capacity as a director, Mr Foley signed the verification notes, the pathfinder

prospectus and the final version of the Admission Documentation. Mr Foley also

signed an individual responsibility statement in respect of the pathfinder

prospectus and the final Admission Documentation.

4.26. The Authority in this Notice does not criticise the conduct of any of the

professional advisers involved in WSG’s admission to AIM or in the preparation

of WSG’s Annual Accounts or those of its Subsidiaries.

4.27. At the material time, the AIM rules specified the information that had to be

included in an AIM admission document. The overriding requirement was that

the document had to contain all information that the company reasonably

considered necessary to enable investors to form a full understanding of,

amongst other matters, the assets and liabilities, financial position, profits and

losses and prospects of the company and its shares for which admission is being

sought (see Annex B for the relevant AIM Rules).

4.28. Such issues were dealt with in detail during various WSG board meetings in July

2007 attended by Mr Foley and WSG’s professional advisors. During these

meetings, Mr Foley signed various documents and was made aware of a number

of responsibilities and obligations. For example:

(1)
Mr Foley confirmed that he had received a memorandum on directors’

liabilities which contained, amongst others, a paragraph explaining the

potential liabilities to which directors could be exposed if the Admission

Documentation was inaccurate, incomplete or misleading. Those potential

liabilities included actions under section 118 of the Act for market abuse

and section 397 of the Act for misleading statements;

(2)
Mr Foley signed a letter entitled ‘Director’s letter of authority,

responsibility statement and declaration of interest’ in respect of the

pathfinder prospectus document. In this responsibility statement Mr Foley

approved the document and the verification notes relating to it; and

(3)
Mr Foley was reminded that the verification notes had been prepared to

help verify the contents of the pathfinder prospectus, to ensure that all

the facts stated in it were true and accurate and that all opinions and

statements in it were reasonable and honestly held and that there was no

omission of material facts which would otherwise make any statements in

the pathfinder prospectus misleading.

4.29. Acting under powers of attorney, Mr Foley signed the verification notes dated 25

July 2007 on behalf of all directors which asked the directors to:

(1)
“Please confirm and verify with evidence (where possible) that as at 25

July 2007 (being the most recent practicable date before the publication

of the Admission Document) there were no outstanding loans granted …

by any Director to any member of the Group …”.

(2)
“Please confirm and verify with evidence (where possible) that the

Directors believe that the Company’s key strengths include having a

successful risk management model”.

4.30. On 25 July 2007, WSG submitted its application for admission to AIM to the LSE.

The application form contained the following declaration:

“the admission document complies with the AIM Rules for Companies and

includes all such information as investors would reasonably expect to find

and reasonably require for the purpose of making an informed

assessment of the assets, liabilities, financial position, profits, losses, and

as to the prospects of the issuer and the rights attaching to its securities”.

4.31. The application form was signed by Mr Foley.

Omissions in WSG’s Admission Documentation

4.32. Despite the clear obligations which bound Mr Foley and which he understood,

WSG’s Admission Documentation omitted material information.

4.33. First, WSG’s Admission Documentation did not mention the Internal Loans which,

as at 1 August 2007, were still outstanding in the sum of at least €1.6 million.

As Related Party Transactions the loans should have been so identified in the AIM

admission (and pathfinder prospectus) document and, in any event, should have

been listed as a liability in WSG’s consolidated balance sheet and by inclusion in

the table of “Interest bearing Loans and Borrowings”. Instead, WSG’s AIM

admission (and pathfinder prospectus) document stated that there were “no

outstanding loans granted […] by any Director to any member of the Group.”

4.34. Second, WSG’s Admission Documentation did not mention the Internal Hedging

strategy because, the Authority considers, it was acknowledged amongst the

Participants as being an inappropriate and unethical practice. Mr Foley described

Internal Hedging, in an email sent fifteen days after WSG’s admission to AIM, as

being “contrary to all trading standards and ethics for a trading desk. I guarantee

you there is [not] a single trading desk in the world where traders take part of

the
book
themselves
without
shareholder
approval
and
proper

procedure”. Instead, when describing how it hedged risk, it was stated that WSG

took a “conservative approach to risk management” which utilised the wholesale

markets.

4.35. These issues were highly material to the flotation of WSG. In addition to the

explicit requirements for accurate disclosure in the Admission Documentation,

potential investors would have needed to receive accurate information on these

matters in order to decide whether or not to invest in WSG shares. In addition

to the basic requirement for accurate financial information the Internal Hedging

should have been declared to investors because:

(1)
it created inherent conflicts of interest whereby the Participants sought to

make personal profits against selected trades made by Subsidiary A and

Subsidiary B’s clients, potentially at the expense of Subsidiary A and

Subsidiary B;

(2)
the Internal Hedging comprised Related Party Transactions which should

have been disclosed in the Annual Accounts;

(3)
the ability for directors to make personal profits by participating in the

Internal Hedging should have been accounted for as part of directors’

benefits and remuneration; and

(4)
prospective investors would have wanted to know about the Internal

Hedging because it may well have been viewed by them as incompatible

with WSG’s declared approach of adopting a conservative approach to risk

management.

Failure to declare the Internal Loans after WSG’s admission to AIM

4.36. Following WSG’s admission to AIM and throughout the Relevant Period the Internal

Loans were not declared as either loans or Related Party Transactions in WSG’s

Annual Accounts. While it appears that certain directors may have been repaid, in-

part or in-whole, during the Relevant Period, some Internal Loans remained

outstanding at the time of WSG’s collapse. Mr Foley was aware of these failures.

Failure to declare the Internal Hedging after WSG’s admission to AIM

4.37. Following WSG’s admission to AIM and until at least 2009 the Internal Hedging was

not declared as a Related Party Transaction in WSG’s Annual Accounts. Mr Foley

was aware of the failure to do so.

S118(5), (6) and (7) conduct – unauthorised placing of Spread-Bets to

effect share purchases

4.38. On several occasions between December 2009 and October 2011, Mr Foley

became aware of certain investors’ desire to sell large blocks of WSG

shares. There being no natural purchasers for these shares, and concerned

about the effect that these potentially large, unfulfilled sell orders would have on

WSG’s share price, Mr Foley used the trading accounts of two WSL clients without

their knowledge to place large Spread-Bets on WSG shares. The nature of the

hedging process meant that these Spread-Bets caused the purchase of a large

number of WSG shares from the market.

4.39. Mr Foley’s conduct came to light in March 2012, following the collapse of WSG,

when he stated during a formal meeting with two members of the WSG board

and later the Authority that, upon learning in December 2009, May 2010 and

September 2011 that certain existing shareholders wished to sell large stakes in

WSG, he had approached four clients (Clients 2–5 below) of WSL’s CFD trading

desk and asked them to open large, long Spread-Bets on WSG shares on his

behalf.

4.40. Mr Foley further stated that he made an oral agreement with these four clients

that, in the event of losses arising from these Spread-Bets, they would not have

to cover those losses and he agreed that he would cover any losses (and take

any profits) himself.

4.41. In addition to the four clients identified by Mr Foley, he also opened an account

in a family member’s name in December 2009 (Client 1) telling that individual it

was for “testing” the IT system. Instead, that account was only ever used for the

WSG Spread-Bet described below. A profit of £175,000 was made from this

Spread-Bet, unbeknown to the family member. This profit, rather than being

provided to Client 1, was written off on 14 April 2011 at Mr Foley’s direction.

4.42. These WSG Spread-Bets (i.e. those in the name of Clients 1 -5) were calculated

to effect the purchase of the exact number of WSG shares in the market that the

sellers wished to dispose of. This is because the Spread-Bets were fully hedged

through the actual purchase of the underlying WSG shares by third party brokers.

The Authority has identified seven such Spread-Bets, between January 2010 and

October 2011, using the accounts of four actual clients (Clients 2 – 5) and one

set up by Mr Foley in a family member’s name (Client 1).

4.43. Unless otherwise stated, the Spread-Bets described below were hedged by WSL

using CFDs (with a margin rate of 100%) purchased from third party brokers

who, in turn, hedged the CFDs by purchasing WSG shares in the market.

4.44. On the basis of an analysis of all the available evidence, and notwithstanding Mr

Foley’s account, the Authority considers that Mr Foley used the trading accounts

of two clients (Clients 1 & 3) without their knowledge. Mr Foley’s conduct with

respect to these accounts amounted to market abuse contrary to sections

118(5)(a) and 118(6) of the Act.

4.45. Further, Mr Foley, despite his position as a director of WSG, did not disclose these

dealings to WSG, thereby preventing WSG’s compliance with AIM Rule 17

(notification of directors’ dealings) and concealing Mr Foley’s involvement in the

purchase of, and demand for, these shares.

4.46. Despite being margined at 100% (due to broker concerns over the lack of

liquidity in WSG shares) the clients were not called for additional margin in

relation to their WSG Spread-Bets as the share price started to decline and as a

consequence, after WSG collapsed, these spread-bets left the clients with debts

to WSL of approximately £1.6 million between them. This was despite the

relevant years’ accounts stating that:

“The Group has a formal credit policy which determines the financial and

experience criteria which a client must satisfy before being given an account

which exposes the Group to credit risk and the account limits which are

allocated…. The Group monitors credit risk carefully and it is Group Policy

that all customers who wish to trade on credit terms are subject to credit

verification procedures” [Emphasis added].

4.47. Each of the transactions with Clients 1 – 5 set out below therefore rendered

statements as to WSG’s credit policy contained in and disseminated through its

Annual Accounts false and misleading. Mr Foley thereby contravened s118(7) of

the Act.

The Spread-Bets

4.48. In December 2009 Mr Foley was made aware that two institutional shareholders

were preparing to sell large stakes in WSG (approximately 3.4 million shares or

8.5% of WSG’s issued share capital). Also in December 2009, Mr Foley

approached a family member to set up a “test” account in their name (Client 1).

In January 2010, Mr Foley identified a buyer for 1.8 million of the shares leaving

a potential “overhang” (excess supply of shares on the market) of 1.6 million

WSG shares. However, instead, on 20 January 2010 two, long Spread-Bets were

booked, clearing the potential overhang:

(1)
One to the account of Client 1 the value of which equated to 1 million

shares or 2.5% of WSG’s issued share capital; and

(2)
A second, to the account of Client 2 the value of which equated to 800,000

shares or 2% of WSG’s issued share capital.

4.49. Ultimately, this January 2010 Spread-Bet of Client 2 resulted in a loss of

£230,320 when WSL went into Administration in March 2012. The Spread-Bet of

Client 1 was closed on 20 April 2010 and the stake taken up in Client 3’s account.

4.50. Client 1’s WSG Spread-Bet was closed at 15:44 on 20 April 2010. At 15:45 a

long WSG Spread-Bet equating to the exact number of shares as that of Client

1, that is, 1 million or 2.5% of WSG’s issued share capital, was opened in Client

3’s account thus removing a potential overhang of WSG shares that would have

been the result of the closure of Client 1’s Spread-Bet. Ultimately, the Spread-

Bet in Client 3’s account led to a loss of £790,700 when WSL went into

Administration in March 2012.

4.51. In May 2010, Mr Foley became aware of another potential seller, this time of

250,000 shares in WSG. On 31 August 2010, Client 4 opened a long WSG Spread-

Bet equating to 250,000 shares or 0.63% of WSG’s issued share capital.

Ultimately, Client 4’s Spread-Bet led to a loss of £190,025 when WSL went into

Administration in March 2012.

4.52. While there does not appear to have been a seller in August 2011, on 5 August

2011, Mr Foley wrote to brokers stating that he had found a potential investor.

A few days later, Client 2 took out another two Spread-Bets on WSG shares

equivalent to 200,000 WSG shares or 0.5% of WSG’s issued share capital. Client

2’s Spread-Bets in January 2010 and August 2011 led to a total loss of £574,640

when WSL went into Administration in March 2012.

4.53. In September 2011 Mr Foley was made aware of a potential seller wishing to

dispose of 140,000 WSG shares or 0.35% of WSG’s issued share capital. On 14

October 2011, a Spread-Bet on WSG shares equivalent to this amount was

opened in Client 5’s account. Ultimately, the Spread-Bet in Client 5’s account led

to a loss of £56,336 when WSL went into Administration in March 2012.

Mr Foley’s motives

4.54. The Authority considers that Mr Foley’s objective through the Spread-Bets of

Clients 1 and 3 was to create artificial demand for WSG shares at a time when

there were large potential sell orders in the market.

Additional considerations in assessing fitness and propriety

Civil finding against Mr Foley regarding payments from WSL

4.55. On 10 June 2013 WSL (in Special Administration) lodged a claim, against Mr

Foley, in the High Court (Queen’s Bench Division). It was claimed that Mr Foley,

while holding the position of CEO and Director of WSL, between April 2008 and

February 2012, procured payments from WSL totalling £546,166 for his personal

use or benefit and that these payments were to be treated as loans made by

WSL to Mr Foley personally. Mr Foley had made repayments of a total value of

only £231,087 leaving an outstanding debt of £315,079 which he had failed and

refused to repay.

4.56. WSL (in Special Administration) also claimed that WSL had been prohibited from

making payments to Mr Foley under section 197(2) of the Companies Act 2006

unless these payments were approved by a resolution of the members of WSL.

However, no such resolutions were passed. WSL (in Special Administration)

claimed that these payments were quasi-loans which required approval of the

members of WSL under section 198(3) of the Companies Act 2006. Similarly, no

such resolutions were passed.

4.57. On 14 October 2014 HHJ Richard Seymour QC ruled that the sum outstanding

was £309,321 and determined that the amounts owed by Mr Foley to WSL (in

Special Administration) were, in effect, loans.

5.
FAILINGS

5.1.
The regulatory and legislative provisions relevant to this Final Notice are referred

to in Annex B.

Market abuse

5.2.
Throughout the Relevant Period shares in WSG were qualifying investments

admitted to trading on AIM, a prescribed market for the purposes of section 118

of the Act, or were qualifying investments for which a request for admission to

trading on AIM had been made.

5.3.
For the reasons set out below, by his behaviour described in this Notice, Mr Foley

engaged in market abuse contrary to sections 118(7), 118(5) and 118(6) of the

Act.

Section 118(7) of the Act

5.4.
Pursuant to section 118(7) of the Act, market abuse includes behaviour which

consists of the dissemination of information by any means which gives, or is

likely to give, a false or misleading impression as to a qualifying investment by

a person who knew or could reasonably be expected to have known that the

information was false or misleading.

Dissemination of information by any means

5.5.
Mr Foley disseminated information by providing the misleading information as

part of WSG’s Admission Documentation and by its subsequent failure during the

Relevant Period to declare the Internal Loans and the Internal Hedging, and to

accurately describe WSG and its Subsidiaries’ credit policy in its Annual Accounts.

Mr Foley was the CEO of WSG (and WSL) and was an approved person. He bore

responsibility for the accuracy of WSG’s AIM Admission Documentation and the

Annual Accounts.

Gives or is likely to give a false or misleading impression

5.6.
The omission from WSG’s Admission Documentation of the Internal Loans and

the Internal Hedging, the failure to declare the Internal Loans and the Internal

Hedging in the Annual Accounts, and the failure to accurately describe WSG and

its Subsidiaries’ credit policy in its Annual Accounts during the Relevant Period

gave, or were likely to give, a false or misleading impression of WSG’s financial

position and risk management practices.

Person who knew or could reasonably be expected to have known that the

information was false or misleading

5.7.
Mr Foley was the CEO of WSG and WSL. In respect of WSG’s Admission

Documentation, Mr Foley was aware of the existence of the Internal Loans and

the Internal Hedging and he was also aware of the failure during the Relevant

Period to declare the Internal Loans and the Internal Hedging, and to accurately

describe WSG and its Subsidiaries’ credit policy, in its Annual Accounts. Mr Foley

knew, or could reasonably be expected to have known, that because it contained

no, or inaccurate, information about these issues, WSG’s Admission

Documentation and its Annual Accounts were false or misleading.

Sections 118(5) and (6) of the Act

Effecting transactions or orders to trade

5.8.
Both sections 118(5) and 118(6) of the Act apply to behaviour which consists of

effecting transactions or orders to trade. By using the client accounts of Clients

1 and 3 in the manner described, Mr Foley effected transactions or orders to

trade in WSG shares. Mr Foley knew that placing these Spread-Bets would,

through the hedging of those bets in the market, cause the purchase of WSG

shares.

5.9.
Section 118(5)(a) of the Act describes transactions which:

give, or are likely to give, a false or misleading impression as to the […]

demand for, […] one or more qualifying investments

5.10. Section 118(6) of the Act describes transactions which:

employ fictitious devices or any form of deception or contrivance

5.11. The Authority considers that Mr Foley engaged in market abuse contrary to

sections 118(5)(a) and (6) of the Act because:

(1)
there was an actuating purpose to the Spread-Bets, namely to create

artificial liquidity in WSG shares that would not otherwise have existed;

(2)
the transactions purported to be effected by clients trading independently

and at arm’s-length from WSG when in fact they were effected by its CEO.

(3)
under the AIM rules, WSG was required to make a notification when a

director (or significant shareholder) dealt in its shares. By using the client

accounts to effect the transactions, Mr Foley sought to circumvent his

obligations to disclose his dealings to WSG, thereby preventing WSG’s

compliance with its notification requirements. Investors (or potential

investors) who would reasonably have expected to have proper and full

information about such trading were left uninformed.

5.12. The Authority has had regard to MAR 1.7.2 (Descriptions of behaviour that

amount to market abuse (manipulating devices) and in particular to MAR

1.7.2(2) which describes transactions designed to conceal the ownership of a

qualifying investment so that disclosure requirements are circumvented by the

holding of the qualifying investment in the name of a colluding party, such that

disclosures are misleading in respect of the true underlying holding.

Conclusion on market abuse

5.13. For the reasons set out above and having regard to the provisions of MAR (set

out in Annex B to this notice) the Authority considers that Mr Foley deliberately

engaged in market abuse contrary to sections 118(7), (5)(a) and (6) of the Act.

5.14. Pursuant to section 123(1) of the Act, the Authority may therefore impose a

penalty of such amount as it considers appropriate on Mr Foley, or, pursuant to

section 123(3) of the Act, the Authority may instead of imposing a penalty on Mr

Foley, publish a statement censuring him.

5.15. Section 123(2) of the Act states that the Authority may not impose a penalty for

market abuse in certain circumstances. The Authority is satisfied that these

circumstances do not apply to Mr Foley’s conduct as described in this notice.

Fitness and Propriety

5.16. The relevant sections of FIT are set out in Annex B. FIT 1.3.1G states that the

Authority will have regard to a number of factors when assessing the fitness and

propriety of a person to perform a particular controlled function, as more

particularly described in FIT 2 (Main assessment criteria). FIT 1.3.1BG states that

in the Authority’s view, the most important considerations will include, among

other matters, a person’s honesty, integrity and reputation when assessing a

person’s fitness and propriety.

5.17. As described above, for a period of almost five years, Mr Foley permitted material

omissions from WSG’s financial information, including documentation supporting

WSG’s admission to trading on AIM, knowing that the incomplete information

would be reflected in WSL’s and WSG’s published Annual Accounts. Mr Foley also

managed an Internal Hedging strategy which involved the use of fake client

trading accounts or real client trading accounts without their knowledge. Mr Foley

deliberately engaged in market abuse contrary to section 118(7) of the Act,

despite having been, during the Relevant Period, an approved person, and having

held a senior position at WSL, a regulated firm, and at WSG.

5.18. Further, between January 2010 and March 2012, Mr Foley effected transactions

which gave, or were likely to give, a false or misleading impression as to the

demand for WSG shares and employed manipulating devices in relation to WSG

shares. Mr Foley thereby deliberately engaged in market abuse contrary to

sections 118(5)(a) and (6) of the Act.

5.19. Furthermore, for the purposes of FIT 2.1.3G(2), as described at paragraphs 4.55

to 4.57 above, Mr Foley has been subject to an adverse finding in civil

proceedings in connection with financial business and the management of a

company.

5.20. In light of these considerations, the Authority considers that Mr Foley’s actions

were dishonest. Consequently, Mr Foley is not a fit and proper person to perform

any function in relation to any regulated activity carried on by an authorised

person, exempt person or exempt professional firm.

6.
SANCTION

6.1.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP. The detailed provisions of DEPP are set out at Annex A. In determining the

appropriate financial penalty, the Authority has had regard to Chapter 6 of DEPP.

The current penalty guidance (“New DEPP”) is relevant to breaches that took

place on or after 6 March 2010. Before that date, a previous version of DEPP

(“Old DEPP”) was in force.

6.2.
Mr Foley’s abusive behaviour took place over the period from 25 July 2007 to 16

March 2012. As this abuse took place over a period when Old DEPP and then New

DEPP were in force the Authority has split its penalty calculation to produce, first,

a penalty covering abuse in the period from 25 July 2007 to 5 March 2010

applying Old DEPP and, second, a penalty covering abuse in the period from 6

March 2010 to 16 March 2012 applying New DEPP in force over that later period.

The Authority has added the two penalties together to produce the total penalty.

6.3.
The total financial penalty which the Authority would have imposed on Mr Foley,

had he not provided verifiable evidence that the imposition of a financial penalty

of any amount would cause him serious financial hardship, is £658,900. A full

calculation and explanation of how DEPP has been applied is set out at Annex A.

In summary this penalty is calculated as follows:

(1)
For Mr Foley’s abusive behaviour contrary to section 118(7) of the Act,

from 25 July 2007 to 5 March 2010, under Old DEPP, the Authority would

have imposed a financial penalty of £300,000.

(2)
For Mr Foley’s abusive behaviour contrary to section 118(7) of the Act,

from 6 March 2010 to 16 March 2012, under New DEPP, the Authority

would have imposed a financial penalty of £174,314, calculated as

a) At Step 1, there is no amount subject to disgorgement.

b) At Step 2, Mr Foley’s relevant income is £435,786 and a seriousness

level of 5 has been applied (40% of relevant income), giving a Step 2

figure of £174,314 (applying DEPP 6.5C.2 (2))

c) At Step 3, there are no mitigating or aggravating factors.

d) At Step 4 there is no adjustment for deterrence.

e) At Step 5, there is no settlement discount.

(3)
For Mr Foley’s abusive behaviour in relation to sections 118(5) and 118(6)

of the Act, between 20 January 2010 and 18 March 2012, under New

DEPP, the Authority would have imposed a financial penalty of £184,591,

calculated as follows:

a) At Step 1, there is no amount subject to disgorgement.

b) At Step 2, Mr Foley’s relevant income is £461,479 and a seriousness

level of 5 has been applied (40% of relevant income), giving a Step 2

figure of £184,591.

c) At Step 3, there are no mitigating or aggravating factors.

d) At Step 4, there is no adjustment for deterrence.

e) At Step 5, there is no settlement discount.

(4)
Accordingly, the combined financial penalty that the Authority would have

imposed on Mr Foley under Old DEPP and New DEPP – rounded down to

the nearest £100 – is £658,900 (£300,000 plus £174,314 plus £184,591).

6.4.
The Authority has had regard to the guidance in Chapter 9 of EG in considering

whether to impose a prohibition on Mr Foley. The Authority has the power to

prohibit individuals under section 56 of the Act.

6.5.
The Authority considers that because Mr Foley:

a)
engaged in market abuse contrary to section 118(7) of the Act, by

knowingly permitting false or incomplete information to be included in

WSG’s Admission Documentation, and by failing during the Relevant

Period to declare the Internal Loans and the Internal Hedging, and to

accurately describe WSG and its Subsidiaries’ credit policy, in WSG’s

Annual Accounts, despite having been, during the Relevant Period, an

approved person;

b)
managed the Internal Hedging which involved the use of fake client

trading accounts and the unauthorised use of actual trading accounts;

c)
engaged in market abuse contrary to sections 118(5) and (6) of the Act,

namely false and misleading impressions and employing manipulating

devices, despite having been, during the Relevant Period, an approved

person, and

d)
between April 2008 and February 2012 procured for himself from WSL

unauthorised loans, as found in a judgment of the High Court given in

October 2014 and pursuant to which he was ordered to pay WSL £309,321

he lacks honesty and therefore is not a fit and proper person to perform any

function in relation to any regulated activity carried out by an authorised person,

exempt person or exempt professional firm, and that a prohibition should be

imposed on him under section 56 of the Act.

7.
REPRESENTATIONS

7.1.
Annex C contains a brief summary of the key representations made by Mr Foley,

and how they have been dealt with. In making the decision which gave rise to

the obligation to give this Final Notice, the Authority has taken into account all

of the representations made by Mr Foley, whether or not set out in Annex C.

8.
PROCEDURAL MATTERS

Decision maker

8.1.
The decision which gave rise to the obligation to give this Final Notice was made

by the Regulatory Decisions Committee.

8.2.
This Final Notice is given under, and in accordance with, section 390 of the Act.

8.3.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this Final Notice relates. Under those

provisions, the Authority must publish such information about the matter to

which this Final Notice relates as the Authority considers appropriate. The

information may be published in such manner as the Authority considers

appropriate. However, the Authority may not publish information if such

publication would, in the opinion of the Authority, be unfair to Mr Foley or

prejudicial to the interests of consumers or detrimental to the stability of the UK

financial system.

8.4.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

8.5.
For more information concerning this matter generally, contact Elaine Stapleton

at
the
Authority
(direct
line:
020
7066
0760
or
email:

elaine.stapleton@fca.org.uk).

Head of Department, Enforcement and Market Oversight Division

Financial penalty under Old DEPP

1.1.
References to DEPP in paragraphs 1.2 to 1.8 are to Old DEPP and relate solely to

the breaches by Mr Foley of section 118(7) of the Act. The Authority considers

the following DEPP factors to be particularly important in assessing the financial

penalty payable for his market abuse prior to 6 March 2010.

Deterrence – DEPP 6.5.2(1)

1.2.
The principal purpose of a financial penalty is to promote high standards of

regulatory and/or market conduct by deterring persons who have committed

breaches from committing further breaches and helping to deter other persons

from committing similar breaches, as well as demonstrating generally the

benefits of compliance to individuals. The Authority considers that the need for

deterrence means that a substantial fine on Mr Foley is appropriate.

Nature, seriousness and impact of the breach – DEPP 6.5.2(2)

1.3.
Mr Foley’s breaches were extremely serious. The period of the market abuse here

was particularly long: from 25 July 2007 until 5 March 2010.

1.4.
Mr Foley’s abusive behaviour had a serious impact on the financial markets. For

instance, WSG raised £5.77 million on its AIM flotation. Investors and prospective

investors, both of which had a right to expect that WSG’s Admission

Documentation would be accurate and full, were seriously misled.

The extent to which the breach was deliberate or reckless DEPP 6.5.2(3)

1.5.
The Authority considers that Mr Foley’s actions were deliberate. As CEO of WSG

he was ultimately responsible for the accuracy of the verification notes and

WSG’s Admission Documentation. However, he deliberately allowed WSG to

apply for admission to trading based on serious misrepresentations and

permitted WSG’s Annual Accounts thereafter to contain false and misleading

information.

1.6.
In light of these factors and considering previous financial penalties levied on

other individuals for market abuse under section 118(7) of the Act, the Authority

considers that Mr Foley’s conduct merits a significant financial penalty of

£300,000 for his abusive behaviour between 25 July 2007 and 5 March 2010. No

settlement discount applies.

1.7.
The financial penalty for Mr Foley’s breach of section 118(7) of the Act in the

period prior to 6 March 2010, had he not provided verifiable evidence that the

imposition of a financial penalty of any amount would cause him serious financial

hardship, would have been £300,000.

1.8.
Mr Foley’s breaches of sections 118(5) and (6) of the Act occurred both before

and after 6 March 2010. But as most of his breaches of sections 118(5) and (6)

occurred after 6 March 2010, the Authority has assessed the financial penalty

solely under New DEPP, the regime in force from 6 March 2010 (see paragraphs

1.9 to 1.29 below).

Financial penalty under New DEPP

1.9.
In respect of any breach occurring on or after 6 March 2010, the Authority applies

a five-step framework to determine the appropriate level of financial penalty.

DEPP 6.5.C sets out the details of the five-step framework that applies in respect

of financial penalties imposed on individuals who have committed market abuse.

1.10. The Authority has applied this framework to the breaches by Mr Foley of section

118(7) of the Act that occurred on or after 6 March 2010, and to the breaches

by Mr Foley of sections 118(5) and (6).

1.11. Pursuant to DEPP 6.5C.1G at Step 1 the Authority seeks to deprive an individual

of the financial benefit derived directly from the market abuse where it is

practicable to quantify this. Mr Foley did not derive a direct financial benefit from

the market abuse. The Step 1 figure therefore is nil.

Step 2: The Seriousness of the breach

1.12. The market abuse (with respect to sections 118(5), (6) and (7) of the Act) was

undertaken by Mr Foley in the course of his employment. On this basis, DEPP

6.5C.2(2) provides that the Step 2 figure will be the greater of: (a) a figure based

on a percentage of Mr Foley’s relevant income; (b) a multiple of the profit made

or loss avoided by the individual for their own benefit, or for the benefit of other

individuals where the individual has been instrumental in achieving that benefit,

as a direct result of the market abuse (the “profit multiple”); and (c) where the

seriousness level of the abuse is considered to be level 4 or 5, £100,000.

1.13. The Authority has not identified any profit made or loss avoided for Mr Foley’s

own financial benefit from the market abuse. Therefore, the Authority will use

the greater of a figure based on a percentage of Mr Foley’s relevant income or

£100,000 for Step 2.

Relevant Income

1.14. Pursuant to DEPP 6.5C.2(4) and (5), because the market abuse in each case took

place over a period of greater than 12 months, Mr Foley’s relevant income will

be the gross amount of all benefits he received in connection with his

employment during the periods of the market abuse. The period of the market

abuse, for the purposes of the calculation of relevant income, for section 118(7)

was from 6 March 2010 to 16 March 2012. The period of the market abuse for

section 118(6) was from 20 January 2010 to 16 March 2012. Mr Foley’s relevant

income is:

(1)
for the purposes of breaches of section 118(7), £435,786; and

(2)
for the purposes of breaches of sections 118(5) and (6), £461,479.

1.15. DEPP 6.5C.2(6)(a) provides that in cases where the market abuse was referable

to the individual’s employment, the Authority will determine the percentage of

relevant income which will apply by considering the seriousness of the market

abuse and choosing a percentage between 0% and 40%.

1.16. DEPP 6.5C.2(8) provides that where the market abuse was referable to the

individual’s employment the percentage range is divided into five fixed levels

which reflect, on a sliding scale, the seriousness of the market abuse. The more

serious the market abuse, the higher the level. For penalties imposed on

individuals for market abuse the following five levels and percentages apply:

(a) level 1 – 0%

(b) level 2 – 10%

(c) level 3 – 20%

(d) level 4 – 30%

(e) level 5 – 40%

1.17. DEPP 6.5C.2(10) provides that, in assessing the seriousness level, the Authority

will take into account various factors which reflect the impact and nature of the

market abuse, and whether it was deliberate or reckless. DEPP 6.5C.2 (15) lists

factors likely to be considered ‘level 4 or 5 factors’. Of these, the Authority

considers the following factors to be relevant to Mr Foley’s breaches of sections

118(5), (6) and (7):

(1)
Mr Foley committed the market abuse for a sustained period of time, for

just over two years (for the purposes of the penalty calculation under New

DEPP) and on multiple occasions (DEPP 6.5C.2(15)(c)).

(2)
Mr Foley breached a position of trust, as CEO, within WSL and WSG (DEPP

6.5C.2(15)(d)).

(3)
Mr Foley had a prominent position within the market (DEPP

6.5C.2(15)(e)).

(4)
Mr Foley acted deliberately (DEPP 6.5C.2(15)(f)).

Level of seriousness

1.18. The Authority considers the seriousness of Mr Foley’s market abuse in relation

(1)
section 118(7) to be level 5; and

(2)
sections 118(5) and (6) to be level 5.

1.19. The Step 2 figure is the higher of 40% of Mr Foley’s relevant income; and

£100,000. The calculations are set out in the table below.

Level and

relevant %

Relevant

Step 2 figure

118(5) & (6)

5 (40%)
£461,479
£184,591

Section 118(7)
5 (40%)
£435,786
£174,314

1.20. The Step 2 figures are therefore £184,591for the section 118(5) and (6) breaches

and £174,314 for the section 118(7) breaches.

Step 3: Mitigating and aggravating factors

1.21. DEPP 6.5C.3G provides that the Authority may increase or decrease the amount

of the financial penalty arrived at after Step 2 to take into account factors which

aggravate or mitigate the market abuse.

1.22. The Authority does not consider that there are any such aggravating or mitigating

factors. At Step 3 the figures are therefore £184,591 for the section 118(5) and

(6) breaches and £174,314 for the section 118(7) breaches.

Step 4: Adjustment for deterrence

1.23. Pursuant to DEPP 6.5C.4G, if the Authority considers the figure arrived at after

Step 3 is insufficient to deter the individual who committed the market abuse, or

others, from committing further or similar market abuse, then the Authority may

increase the penalty.

1.24. The Authority does not consider it necessary to apply an uplift to achieve credible

deterrence.

1.25. The Step 4 figure is therefore £358,905.

Step 5: Settlement discount

1.26. Pursuant to DEPP 6.5C.5G, if the Authority and an individual, on whom a penalty

is to be imposed, agree the amount of the financial penalty and other terms,

DEPP 6.7.3 provides that the amount of the financial penalty which might

otherwise have been payable will be reduced to reflect the stage at which the

Authority and an individual reached agreement. The settlement discount does

not apply to the disgorgement of any benefit calculated at Step 1.

1.27. The Authority and Mr Foley did not reach a settlement and therefore no

settlement discount applies to the Step 4 figures.

1.28. The figure at Step 5 is therefore £184,591 for the section 118(5) and (6)

breaches, and £174,314 for the section 118(7) breaches, making a total penalty

of £358,900 (rounded down to the nearest £100).

1.29. Had Mr Foley not provided verifiable evidence that the imposition of a financial

penalty of any amount would cause him serious financial hardship, the Authority

would therefore have imposed on Mr Foley a total financial penalty of £658,900

(rounded down to the nearest £100) comprising:

(1)
A penalty of £300,000 for Mr Foley’s breaches of section 118(7) of the Act

under Old DEPP for the period prior to 6 March 2010; and

(2)
A penalty of £358,905 for Mr Foley’s breaches of sections 118(7), (5) and

(6) of the Act under New DEPP for the period on and after 6 March 2010.

30

Annex B: Relevant Statutory and Regulatory Provisions

1.
RELEVANT STATUTORY PROVISIONS

The Authority has the power under section 56(1) of the Act to prohibit an individual from

performing a specified function, any function falling within a specified description or any

function.

Under section 56(1) of the Act the Authority may prohibit that individual if the individual

is not a fit and proper person to perform functions in relation to a regulated activity

carried on by an authorised person.

The Authority has the power under section 123(1) of the Act to impose a financial

penalty where it is satisfied that a person has engaged in market abuse.

Section 123(2) of the Act sets out certain circumstances in which the Authority may not

impose a penalty on a person:

“But the Authority may not impose a penalty on a person if, having considered

representations made to it in response to a warning notice, there are reasonable

grounds for it to be satisfied that -

“(a) he believed, on reasonable grounds, that his behaviour did not fall within

paragraph (a) or (b) of subsection (1), or

(b) he took all reasonable precautions and exercised all due diligence to avoid

behaving in a way which fell within paragraph (a) or (b) of [subsection 123(1)].”

Section 118(1) (a) of the Act defines ‘market abuse’ as “behaviour (whether by one

person alone or by two more persons jointly or in concert) which -

(a) occurs in relation to:

(i) qualifying investments admitted to trading on a prescribed market;

(ii) qualifying investments in respect of which a request for admission to

trading on such a market has been made

(b) falls within any one or more of the types of behaviour set out in subsections

(2) to (8).”

The behaviour relevant to this case is set out in sections 118(5), (6) and (7) which state

that:

“The fourth is where the behaviour consists of effecting transactions or orders to

trade (otherwise than for legitimate reasons and in conformity with [accepted

market practices] on the relevant market) which – (a) give, or are likely to give

a false or misleading impression as to the supply of, or demand for, or as to the

price of one or more [qualifying investments] or …

"The fifth is where the behaviour consists of effecting transactions or orders to

trade which employ fictitious devices or any other form of deception or

contrivance."

And

“The sixth is where the behaviour consists of the dissemination of information by

any means which gives, or is likely to give, a false or misleading impression as

to a qualifying investment by a person who knew or could reasonably be

expected to have known that the information was false or misleading”

2.
RELEVANT HANDBOOK PROVISIONS

The Authority has issued the Code of Market Conduct (“MAR”) pursuant to section 119

of the Act.1

Under section 122(2) of the Act, the version of MAR in force at the time when particular

behaviour occurs may be relied upon insofar as it indicates whether or not that

behaviour should be taken to amount to market abuse. The following references are to

the version of MAR as at March 2012.

MAR 1.2.3G states that it is not a requirement of the Act that the person who engaged

in the behaviour amounting to market abuse intended to commit market abuse.

MAR 1.6 Market abuse (manipulating transactions)

MAR 1.6.5 describes factors which are to be taken into account when considering

whether behaviour is for “legitimate reasons” (as referred to in section 118(5) of the

Act), and are indications that it is not.

(1)
states that it is such a factor if a person has an actuating purpose behind the

transaction to induce other to trade in, or to position or move the price of, a

qualifying investment.

MAR 1.7 Market abuse (manipulating devices)

MAR 1.7.2 describes behaviour that amounts to market abuse (manipulating devices).

(2)
describes “a transaction or series of transactions that are designed to conceal

the ownership of a qualifying investment, so that disclosure requirements are

circumvented by the holding of the qualifying investment in the name of a

colluding party, such that disclosures are misleading in respect of the true

underlying holding. …”.

MAR 1.7.3 sets out the factors that the Authority can take into account in determining

whether or not a fictitious device or other form of deception or contrivance has been

used.

(1)
if orders to trade given or transactions undertaken in qualifying investments by

persons are preceded or followed by dissemination of false or misleading

information by the same persons or persons linked to them.

MAR 1.8.3G Descriptions of behaviour that amount to market abuse

(dissemination)

The following behaviours are, in the opinion of the Authority, market abuse

(dissemination):

(1)
knowingly or recklessly spreading false or misleading information about a

qualifying investment through the media, including in particular through an RIS

or similar information channel;

(2)
undertaking a course of conduct in order to give a false or misleading impression

about a qualifying investment.

MAR 1.8.4E Factors to be taken into account in determining whether or not

behaviour amounts to market abuse (dissemination)

In the opinion of the Authority, if a normal and reasonable person would know or should

have known in all the circumstances that the information was false or misleading, that

indicates that the person disseminating the information knew or could reasonably be

expected to have known that it was false or misleading.

3.
DECISION PROCEDURE AND PENALTIES MANUAL (“DEPP”)

In determining the level of financial penalty to be paid for abusive behaviour occurring

after 6 March 2010 the Authority has had regard to the provisions of DEPP, particularly

DEPP 6.3G, DEPP 6.5CG, DEPP 6.5DG and DEPP 6.7G. For abusive behaviour occurring

before that date the Authority has had regard to the provisions of DEPP that were in

force at the time.

The Authority’s approach to where an individual or firm claims that payment of the

penalty proposed by the Authority will cause them serious financial hardship is set out

in DEPP 6.5D and can be accessed at this link:

4.
ENFORCEMENT GUIDE ("EG")

Section 7 of EG deals provides guidance regarding financial penalties and public

censures and can be accessed at this link:

Section 9 of EG provides guidance regarding prohibition orders and can be accessed

5.
FIT AND PROPER TEST FOR APPROVED PERSONS ("FIT")

Paragraph 1.3.1G of FIT states:

The Authority will have regard to a number of factors when assessing the fitness and

propriety of a person to perform a particular controlled function, as more particularly

described in FIT 2. FIT 1.3.1BG states that in the Authority’s view the most important

considerations will be the person's:

(1) honesty, integrity and reputation;

(2) competence and capability; and

(3) financial soundness.

FIT 1.3.3G states:

The criteria listed in FIT 2.1 to FIT 2.3 are guidance and will be applied in general

terms when the Authority is determining a person's fitness and propriety. It

would be impossible to produce a definitive list of all the matters which would be

relevant to a particular determination.

If a matter comes to the Authority's attention which suggests that the person

might not be fit and proper, the Authority will take into account how relevant

and how important it is. In this same way, if a matter comes to the attention of

a relevant authorised person which suggests that any staff being assessed under

FIT might not be fit and proper, the firm should take into account how relevant

and how important that matter is.

The relevant criteria in this case are honesty, integrity and reputation.

In assessing the fitness and propriety of an approved person under the criteria of

honesty, integrity and reputation, the Authority will have regard to the matters

including, but not limited to, those set out in FIT 2.1.3G.

6.
AIM RULES

The LSE’s AIM Rules for Companies in force from February 2007 set out the following

relevant rules2. These rules were also in place from February 20103 when the secret

Spread-Bet scheme was established:

Rule 17 – Disclosure of miscellaneous information

“An AIM company must issue notification without delay of:


any deals by directors disclosing, insofar as it has such information, the

information specified by Schedule Five;


any relevant changes to any significant shareholders, disclosing, insofar as it has

such information, the information specified by Schedule Five;”

Rule 31 – AIM company and directors’ responsibility for compliance

“An AIM company must: […]


ensure that each of its directors accepts full responsibility, collectively and

individually, for its compliance with these rules; and


ensure that each director discloses to the AIM company without delay all

information which the AIM company needs in order to comply with rule 17 insofar

as that information is known to the director or could with reasonable diligence

be ascertained by the director.”

Schedule 2 of the AIM rules in force from February 2007

“A company which is required to produce an admission document must ensure that

document discloses the following:

“(k) any other information which it reasonably considers necessary to enable investors

to form a full understanding of:

(i) the assets and liabilities, financial position, profits and losses, and prospects of

the applicant and its securities for which admission is being sought;

(ii) the rights attaching to those securities; and

(iii) any other matter contained in the admission document.”

7.
ACCOUNTING STANDARDS

Relevant definitions within Rule 8 “Related party transactions” as issued by the

Accounting Standards Board during the Relevant Period include:

Paragraph 2.5 Related parties:

2.5(b) For the avoidance of doubt, the following are related parties of the reporting

entity:

(i) its ultimate and intermediate parent undertakings, subsidiary undertakings,

and fellow subsidiary undertakings;

(iv) directors of the reporting entity and the directors of its ultimate and

intermediate parent undertakings; …

Paragraph 2.6 Related party transaction:

The transfer of assets or liabilities or the performance of services by, to or for a related

party irrespective of whether a price is charged.

Paragraph 19 Disclosure of transactions

Disclosure is required of all material related party transactions. […] The following are

examples of related party transactions that require disclosure by a reporting entity in

the period in which they occur: … provision of finance (including loans and equity

contributions in cash or in kind); …

36

Transactions are material when their disclosure might reasonably be expected to

influence decisions made by the users of general purpose financial statements. The

materiality of related party transactions is to be judged, not only in terms of their

significance to the reporting entity, but also in relation to the other related party when

that party is: (a) a director, key manager or other individual in a position to influence,

or accountable for stewardship of, the reporting entity; …

1 All references to MAR in this Annex refer to the version of MAR in force at the time of the misconduct and

market abuse.

2 See AIM Rules for Companies, February 2007.

3 See AIM Rules for Companies, February 2010.

Annex C: Representations

1. Mr Foley’s representations (in italics), and the Authority’s conclusions in respect

of them, are set out below.

The civil claim by WSL

2. The civil finding described at paragraphs 4.55 to 4.57 of this Notice is not a

regulatory issue.

3. Further, Mr Foley was not at fault. While he owed approximately £309,000 to

WSL, he was owed approximately £330,000 by WSG. This was part of a

legitimate process by which WSL would pay his salary and then recharge it to

WSG. WSL had failed to do so, so the money was not recovered from WSG,

leaving Mr Foley with the debt to WSL.

4. The Authority relies on the finding in the judgment of HHJ Richard Seymour QC

that Mr Foley procured for himself unauthorised loans from WSL. As an adverse

finding in civil proceedings in connection with financial business and the

management of a company, the judgment is relevant to whether Mr Foley is fit

and proper. As such, it provides information relevant to consideration of a

regulatory issue.

No irregularities in the accounts of WSG at flotation

5. There were no irregularities in the accounts of WSG at flotation, as demonstrated

by the following factors:

a. Mr Foley did not sell his shares in the company at flotation, even though

the offer was oversubscribed. If he had thought anything wrong, he would

have sold his shares (which, furthermore, he did not do at any point).

b. Close family and friends of Mr Foley purchased shares in WSG, on his

recommendation. He would not have allowed them to do so if he had

thought there was anything wrong with the company accounts, especially

as it was over-subscribed.

c. A major company had made an unsolicited approach to buy WSG for a

substantial sum close to the company’s valuation at flotation 12 months

later. No issues were raised by it arising from due diligence. The deal

aborted due to a change in gambling law in the United States.

38

d. A second major company later made a further approach, and binding

heads of agreement were signed. Again, nothing was raised during due

diligence enquiries. Had there been anything wrong, WSG could not have

proceeded with the transaction because the prospective purchaser would

have discovered it the day after completion.

e. There was a management buy-out of the Irish division of WSG in 2008

following an approach shortly after flotation. This division accounted for

most of the company’s value after flotation. Had there been any problems

with the company, the purchasers would not have paid the substantial

purchase price.

f.
Mr Foley always took his annual bonus in WSG share options rather than

cash. Had he thought there was anything wrong with the company

accounts, he would have taken cash.

g. WSG attempted to recruit a new Chief Financial Officer and recruited an

internal auditor, which they would not have done if they had been aware

of any issues.

h. WSG recruited a new group CEO, to join in 2009. He had full access to

the accounts and could not have been hired, had there been anything

wrong with them.

6. In any event, the affairs of WSG had nothing to do with the UK regulated

company, WSL. If it was appropriate to investigate them at all, this should have

been done by the Irish regulator, not the Authority.

7. The matters listed at paragraph 5 are circumstantial, and do not outweigh the

factual evidence, summarised in the Facts and Matters, on which the Authority

relies in reaching the conclusions set out in this Notice.

8. As WSG was floated and listed on AIM, its affairs are of direct interest to the

Authority in its role as the UK Listing Authority.

No attempt to mislead the market

9. Mr Foley did not attempt to mislead what was, in effect, a private market when

using the accounts of WSL clients to place Spread-Bets on WSG shares, and nor

did the Spread-Bets have that effect. He held 18% of the shares in WSG, 40%

were held by just 5 shareholders and the shares did not trade every day. Share

price movements were of no interest to the company’s owners. The buyers were

experienced investors and their purchases were done properly. He was just

acting as a responsible CEO in trying to help the sellers exit their positions.

Although he had a CEO’s passing interest in the share price of his company, he

had no motive to try to mislead the market.

10. The Authority finds that there is evidence in the contemporaneous documents of

Mr Foley following the share price of WSG and that (as set out at paragraph 4.54

of this Notice) Mr Foley acted with the objective of creating artificial demand for

WSG shares when there were large potential sell orders in the market, in placing

the Spread-Bets through the accounts of Clients 1 and 3. He knew that this

would, through the hedging of those bets in the market, cause the purchase of

WSG shares. The Authority further considers that, by using the accounts of

Clients 1 and 3, Mr Foley sought to circumvent his obligation to disclose his

dealings to WSG, thereby preventing WSG’s compliance with its notification

requirements. This gave, or was likely to give, a false or misleading impression

as to the demand for WSG shares.

Due process - no fair hearing, contrary to article 6 of the European Convention

on Human Rights

11. Mr Foley has not been given access to his work laptop, which would have

provided him with all his emails and files in relation to the matters at issue in

these proceedings. Without them, it has been impossible for him to prepare a

proper defence to the allegations against him. In seeking access to his laptop

data, he is simply asking for access to the same information as has been available

to the Authority.

12. Mr Foley’s right of access to Authority material in connection with these

proceedings is provided for in section 394 of the Act. This requires the Authority

to allow him access to the material it relied on in taking the decision which gave

rise to the obligation to give him the Warning Notice, as well as any other

material which might, in the Authority’s opinion, undermine that decision. The

Authority is satisfied that it provided all such material to Mr Foley at the time of

issuing the Warning Notice.

13. The Authority conducted an incomplete investigation, relying on the evidence of

one former employee of WSG in particular, and failing to interview one key

person who would have supported Mr Foley’s position.

14. In this case, although the Authority has interviewed a number of individuals and

considered witness evidence, much of the evidence on which it relies is in the

form of contemporaneous documentation. It notes that Mr Foley has not

identified any respect in which he says the underlying material is inaccurate or

misleading.

15. The Authority has taken an excessive time over its investigation of this matter,

since opening its investigation in 2012.

16. Mr Foley has not pointed to any respect in which he has been prejudiced by the

time taken in investigating this matter, and the Authority is not aware of any

such prejudice.

17. The Authority pre-judged his case – at a meeting at its offices in 2016, its staff

ambushed him with pre-conceived penalties, contrary to the presumption of

innocence.

18. In accordance with its standard procedure set out in the guidance in DEPP, the

Authority’s Enforcement team offered Mr Foley the opportunity to settle these

proceedings, and in so doing outlined the sanctions it considered appropriate.

As he was entitled to do, Mr Foley declined to settle the proceedings, as a result

of which this matter was referred to the Authority’s Regulatory Decisions

Committee. The Committee operates independently of the Enforcement Division

and has approached this matter fairly and without any preconceptions regarding

Mr Foley’s alleged misconduct or any appropriate sanctions. Mr Foley is entitled

to refer this Notice to the Tribunal, part of HM Courts and Tribunals Service. If

he does so, the Tribunal will consider the findings and sanctions set out in this

Notice by way of a re-hearing.

19. Mr Foley was not allowed to make written representations in these proceedings.

After he indicated a wish to do so, he was told that he had missed the deadline.

20. Mr Foley made oral representations to the Authority. The Authority considers

that he was given ample opportunity to make written representations: in

particular, it agreed to his request for a 3-month extension of time in which to

do so. At the end of that period, Mr Foley declined to make written

representations on the basis that he had not been given access to his laptop

containing his emails and files. As set out at paragraph 12 above, Mr Foley has

had full disclosure of material relied on by the Authority, and material that might

undermine the case against him, in compliance with section 394 of the Act, and

this was explained to him in detail in correspondence.

21. Mr Foley renewed his request to make written representations after the Authority

had given him a final opportunity to request oral representations (not having

responded to any earlier invitation to do so). His renewed request to make

written representations was still on the basis that he first required access to his

emails and files. Accordingly, the Authority considers that it has afforded Mr

Foley every reasonable opportunity to participate in the process.

Mr Foley’s life before and since the Relevant Period

22. Prior to joining WSL and WSG, Mr Foley worked for 10 years as a trader in a

major French bank, with no blemish on his career.

23. He is now ruined. Since the end of the Relevant Period, he has lived with his

parents and refocused his career. He now works as an academic, and has no

plans to live or work in the UK again.

24. Given the seriousness of the breaches committed by Mr Foley as set out in this

Notice, the Authority does not consider that his previous disciplinary record prior

to joining WSL and WSG merits any reduction in sanction in this case.

25. The Authority deals below with Mr Foley’s financial position. In the light of its

finding that he lacks honesty and is not fit and proper, and the risk he therefore

poses to consumers and to the integrity of the UK financial system, the Authority

does not consider Mr Foley’s current stated career intentions or aspirations to

provide justification for not prohibiting him from performing any function in

relation to any regulated activity carried out by an authorised person, exempt

person or exempt professional firm. Nor do these matters justify not imposing

the financial penalty set out in this Notice; the Authority refers to Annex A to this

Notice which sets out the reasons for the penalty which it has decided to impose.

Mr Foley’s financial position

26. Payment of a financial penalty would cause Mr Foley serious financial hardship

and, accordingly, the Authority should not impose one.

27. Mr Foley provided a Statement of Means and accompanying information in June

2018, prior to the issue of the Warning Notice in these proceedings. In October

2019, shortly before his meeting with the Authority’s Regulatory Decisions

Committee (which has made the decision to issue this Notice) to hear his oral

representations, at the invitation of the Committee Mr Foley provided an updated

Statement of Means. The updated Statement suggested, on its face, that

payment of a financial penalty of the amount imposed in this Notice might cause

him serious financial hardship.

28. Authority guidance at DEPP 6.5D.1(2) provides that, where an individual claims

that payment of the penalty proposed by the Authority will cause them serious

financial hardship, the Authority will consider whether to reduce the proposed

penalty only if the individual provides (a) verifiable evidence of this; and (b) full,

frank and timely disclosure of the verifiable evidence, and cooperates fully in

answering any questions asked by the Authority about his financial position.

DEPP 6.5D.1(3) provides that the onus is on the individual to satisfy the Authority

that payment of the penalty will cause him serious financial hardship.

29. The updated Statement of Means provided by Mr Foley was not accompanied by

any supporting information and Mr Foley was invited to provide verifiable

evidence following the meeting. Mr Foley then provided a certain amount of

supporting information. Following comments from the Authority’s Enforcement

case team on the information provided, the Authority gave Mr Foley an

opportunity to supplement this, which he did. Following comments from the case

team on the further information provided, Mr Foley was given a final opportunity

to make any concluding remarks, at which time Mr Foley provided some further

information. However, despite the multiple opportunities he was afforded to

provide verifiable evidence, in accordance with DEPP 6.5D.1, that the penalty

proposed would cause him serious financial hardship, the information provided

by Mr Foley fell short of being full or, in significant respects, verifiable. For

example, instead of up to date bank statements relating to the accounts

previously disclosed by him, Mr Foley provided a spreadsheet, compiled by him,

of banking transactions for the period 30 April 2019 to 25 November 2019. It

was impossible for the Authority to verify that this was either complete or

accurate.

30. The Authority did not consider, at the time of issuing the Decision Notice, that

the criteria set out in DEPP 6.5D.1(2) had been met, and therefore the Authority

did not consider whether to reduce the proposed penalty on the basis of serious

financial hardship.

Representations post issuance of the Decision Notice

31. Since the issuance and publication of the Decision Notice, Mr Foley has provided

verifiable evidence that the imposition of a financial penalty of any amount would

cause him serious financial hardship. Accordingly, the Authority’s settlement

decision makers (see DEPP 5.1.1(3)) have decided to impose a public censure in

place of a financial penalty.


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