Tim Baldwin, a former broker for Canaccord Capital, was accused of insider dealing in 2003, after he purchased about 10,000 shares in Minmet, the Ireland-based mining company, just days before its shares more than tripled on the back of a positive trading statement. He sold out of his position at a substantial profit a few days later.
The FSA alleged that Mr Baldwin had carried out the trades after receiving inside information in a phone conversation with Minmet's chief executive, Michael Nolan.
However, after a three-day hearing at London's Financial Services & Markets Tribunal - during which it emerged that the FSA was unable to prove the telephone conversation took place - the three-man panel found in favour of Mr Baldwin, dismissing the regulator's proposed £25,000 fines against him and his personal investment company, WRT.
Although Mr Nolan maintained there was a telephone conversation between him and Mr Baldwin just days before the company issued its trading update, there is no record of such a call. The Tribunal dismissed the FSA's claims that the call was made from an untraceable phone.
"In our judgement, Mr Nolan is mistaken about the telephone call and Mr Baldwin's denial of it is correct," the ruling said. "The market's revaluation of Minmet after the announcement gave Mr Baldwin the opportunity of profit, which he took."
Mr Baldwin sold two-thirds of his shares in Minmet within a week of the announcement, and the remainder two months later, making a total profit of £20,450.50.
The decision was recently published on the Financial Services & Markets Tribunal website, but was not publicised by the FSA. A spokesman for the regulator said yesterday: "We accept the decision, and it shows how difficult it is in certain market abuse cases to prove the link between individuals and how information may have been shared and acted upon."
The ruling is the FSA's first comprehensive defeat in 26 hearings at the Tribunal. However, it suffered a blow last year, when the Tribunal criticised its enforcement procedures following a high profile clash with Legal & General. The FSA has since conducted a wholesale review of its enforcement procedures, and made a number of changes.
Commenting on the defeat, Neil Mirchandani, a partner at Lovells, the City law firm, said: "If you're alleging that insider dealing information was passed on via a phone call - and you can't prove that the phone call ever took place, you run into an immediate problem. I would have thought that under the FSA's new two-stage enforcement system, this would have been picked up. But it's undoubtedly a bloody nose for them."
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