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 Former JP Morgan executive denies involvement with Kurdistan energy minister's $21m Heritage Oil share order

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Former JP Morgan executive denies involvement with Kurdistan energy minister's $21m share order  4.7.2013 
By Simon Bowers - The Guardian


 

 
Former JP Morgan executive and Banker Ian Hannam (L) is appealing against a L450,000 fine imposed by the Financial Conduct Authority. He denies involvement with Kurdistan Energy minister Ashti Hawrami's $21m Heritage Oil share order Reuters Photo: Ekurd.net/KRG/Reuters
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Banker contests £450,000 fine for allegedly disclosing inside information

July 4
, 2013

LONDON,—  The Kurdish oil minister who allegedly received inside information from the former JP Morgan banker Ian Hannam later instructed brokers to buy up to $21m (£13.9m) of shares in Hannam's client Heritage Oil, a tribunal has heard.

Details of the order were disclosed in papers that form part of the Financial Conduct Authority's defence of its decision to fine Hannam £450,000 for disclosing inside information about Heritage in 2008. The banker, who stepped down from JP Morgan after the fine, began an appeal against the fine at a tribunal in London on Tuesday.

In explanation of the fine, the FCA, then part of the Financial Services Authority, said: "It is not suggested that any trades were conducted on the basis of the information disclosed by Mr Hannam."

The latest court papers, filed by the FCA, say: "The FSA did not consider that it had evidence that the purchase [on the instruction of Ashti Hawrami] was made on the basis of the information Mr Hannam provided to him."

Hawrami explained in a statement that the instruction to brokers at HSBC, on 16 October 2008, had been to purchase shares in a basket of oil companies in order to provide a hedge against investment in the troubled Norwegian exploration group DNO, which had interests in Kurdistan region in Iraq's north.

"Nothing was going on with any of these companies that could have been considered as my having private knowledge as far as I was aware, and no rules were to be broken," he said.

 
 
 

Filings with the tribunal show that JP Morgan instigated its own internal investigation in parallel to FSA actions, which concluded that Hannam had "conducted business communications with third parties in a manner falling below the standards expected of you".

Internal disciplinary action required that he resign from the board of JP Morgan Chase; not initiate new business relationships; not act as nominated adviser to any listed company; and that he must have his mobile phone and emails monitored.

The case against Hannam focuses on two emails sent to Hawrami in September and October 2008, which regulators claim contain insider information in relation to the activities of Heritage in Uganda, which were being closely watched by the markets.

On 9 September, Hannam emailed the Kurdish regional government minister telling him that discussions were taking place between "Tony Buckingham's business" [a reference to the Heritage chief executive] and an unnamed potential bidder. It added that Hannam believed an offer would come in,www.ekurd.net and that offer would be priced at between £3.50 and £4 a share. Nine days later, the Takeover Panel requested that Heritage make a statement to shareholders, in which it confirmed a preliminary takeover approach.

The next day shares rose 18%. Hannam's second contentious email, sent on 8 October, contained a postscript: "PS. Tony has just found oil and it is looking good." This was at a time when news of drilling at Heritage's Warthog-1 well in Uganda was so sensitive that the group's staff had been barred from trading in company shares.

On 21 October 2008 Heritage announced to the stock market "a significant new discovery" at Warthog-1. That day, the FCA told the court, shares in the exploration group rose 14.6%.

Hannam's counsel, Laurence Rabinowitz QC, has urged the tribunal to throw out the fine order. "On a fair and proper analysis of the emails, neither contained inside information. Even if they did, this information was sent by or on behalf of Mr Hannam pursuant to his client's mandate and in the proper performance of his duties as a financial and strategic adviser."

Rabinowitz claimed that decision against Hannam had "sown confusion" as to where the boundary lay on inside information. It "demonstrates a possible failure on the part of the [FCA] properly to understand the nature of the work routinely (and honestly) carried out by financial advisers," he said. The investigation into Hannam had stemmed from a 2009 insider dealing inquiry into Mehmet Sepil, the chief executive of Genel Enerji, which led to a record fine of almost £1m. Genel was a Turkish company with which Heritage had at one stage been discussing a deal. The deal failed as, on the advice of Linklaters, Hannam and others took evidence to the UK authorities that appeared to show insider dealing in Heritage shares.

The tribunal hearing continues.

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