Former GlobalCapital Director loses two appeals on insider trading breach

Former GlobalCapital Director James Black has lost an appeal in the Appeals Court, after the Financial Services Tribunal confirmed a regulator’s decision that accused him of insider trading back in 2007.

James Blake was found to be in breach of the Prevention of Financial Markets Abuse Act for trading shares in GlobalCapital, when he was a director of the insurance and investment firm. The company has since rebranded itself as Lifestar Holding under new ownership.

Blake had appealed the regulator’s decision, arguing that GlobalCapital’s financial situation was publicly known when he sold his shares in December 2007.

Inside information refers to information that has not been made public, relating either directly or indirectly to the firm issuing shares. This includes information regarding company takeovers, or any event that could lead to a significant effect on the price of the financial instrument in question, or would form the basis for any investor’s investment decisions.

In Blake’s case, he was present at a meeting with GlobalCapital board of directors when he learnt, through the company’s management accounts, that the firm had suffered a €1.8 million loss.

This fact in and of itself was never contested by Blake, but he did contest the way that the Malta Financial Services Authority interpreted this information when he was found guilty of insider trading. This formed the basis of Blake’s appeal in front of the Financial Services Tribunal, whose primary task was to determine whether the MFSA’s conclusion on insider trading was in fact reasonable.

Blake contended that information of the company’s financial troubles was already publicly available through previous notices published by GlobalCapital, as early as 24 August 2007, which flagged a post-tax profit of Lm388,919, a 21.9% increase in operating profits, healthy returns on international investment property, but significant fair value losses on securities.

But the Tribunal determined that this information could not be interpreted as information that the company made a €1.8 million loss. A second company announcement published in November 2007 showed the company had experienced increased turnover levels, but profitability had been impacted by the downturn in local and international capital markets during the financial crisis.

The Tribunal determined that the announcement was too “ambiguous and ambivalent” to be interpreted as equivalent to information received during the board of directors’ meeting Blake attended.

Blake argued that GlobalCapital financial statements had shown it generated less of a profit in 2007 compared to 2006, in turn giving the public a clear picture of the company’s financial situation – namely the €1.8 million loss.

But the Tribunal rebutted this strongly in its decision. “There is a key distinction between profitability and loss, of which this distinction is so evident that this Tribunal shouldn’t even have to explain it.”

It was only in December 2007, at the board of directors’ meeting, that Blake could have found out that the company’s financial situation took a turn for the worst. The Tribunal decided that this information qualified as inside information.

It then determined that Blake used this information when trading company shares.

Blake argued he was selling his shares as part of a wider exercise to raise funds from his various stocks to acquire a Sliema property. But this was not enough to convince the Tribunal.

The FST said Blake sold his shares only a few days after the board meeting, suspecting that Blake chose to sell in because he knew he would benefit from good prices in this period prior to the publication of the consolidated audited accounts, which would then have pushed GlobalCapital’s share price down.

This didn’t stop Blake from seeking an annulment on the contested decision in November last year, claiming the Tribunal was inconsistent in its application of the principles of evidence. Yet in its final judgement, the Court of Appeal denied the appeal and reconfirmed the decision taken by the Financial Services Tribunal.