City regulators fined a former Body Shop employee £85,000 yesterday for insider dealing in the cosmetic retailer's shares before a profit warning it made in January 2006.
The Financial Services Authority said that while working on an IT helpdesk at Body Shop, John Shevlin had hacked into senior executives' confidential emails and accessed details of the retailer's 2005 Christmas trading as well as a draft of the profit warning that the group was about to issue to the stock market.
He proceeded to borrow £29,000 – more than his £28,000 annual salary – to take out short positions on Body Shop shares, in effect betting the shares would fall when the profits news was made public. He told his bank the loan was for home improvements. The position was taken out using contracts for difference at 4.03pm on 10 January. It was closed a day later, after the stock dived 18 per cent, netting Mr Shevlin a £38,472 profit.
The trade was brought to the regulator's attention by the spread betting firm IG Index.
Mr Shevlin appealed against the FSA's initial decision to fine him and said he had traded on the basis of his own research, watching Body Shop's stock chart and 200-day moving average, not on inside information. The Financial Services and Markets Tribunal rejected his appeal last month and the FSA imposed the £85,000 fine yesterday, saying there was "cogent and compelling circumstantial evidence" against Mr Shevlin, including the size of the short position he had taken, his access to senior staff's email passwords, and the fact that chartist investors would have bought rather than sold shares on the basis of the patterns he identified.
The FSA said yesterday that it had taken into account the fact there had been no previous findings of market misconduct against Mr Shevlin when it decided the penalty.
Margaret Cole, the FSA's dir-ector of enforcement, said: "Firms must take steps to protect market sensitive information. Where individuals circumvent these protections they should expect to face significant financial or other sanctions, whether or not they are approved by the FSA."
Body Shop shares were delisted after the company was taken over by the French cosmetics giant L'Oreal in March 2006.Reuse content