The Financial Conduct Authority v Da Vinci Invest Ltd

Market abuse under Financial Services and Markets Act 2000 is assessed objectively. No particular state of mind is required to establish the prohibited behaviour. A company may be liable for market abuse committed by traders acting on its behalf under ordinary agency principles, regardless of whether they are employees, independent contractors or joint venturers.

The court may impose a penalty under section 129 on an application under section 381 even if no final injunction is granted. The statutory defences concerning reasonable belief and due diligence must nevertheless be read into section 129. The civil standard of proof applies. A reasonable likelihood of repetition for section 381 purposes means a real possibility that cannot sensibly be ignored having regard to the potential harm.

The Financial Conduct Authority brought proceedings under sections 381 and 129 of the Financial Services and Markets Act 2000 concerning alleged layering or spoofing in high-volume CFD trading linked to shares traded on the London Stock Exchange.

The proceedings concerned Da Vinci Invest Ltd, associated companies, and three traders. The FCA sought final injunctions and financial penalties. The principal issues were whether the trading constituted market abuse, whether the traders’ conduct was attributable to the corporate defendants, whether the court could impose penalties without first granting an injunction, and whether the defendants could establish statutory-style defences.

1. Jurisdiction and penalty. The court had jurisdiction to impose a penalty under section 129 on an application made under section 381, whether or not a final injunction was ultimately granted. Section 129 was not subject to the warning and decision notice requirements applicable to the FCA’s separate regulatory power under section 123.
2. Defences. Section 129 had to be read as incorporating, mutatis mutandis, the protections in section 123(2). The defendant bore the burden of establishing either a reasonable belief that the conduct was not market abuse or that all reasonable precautions and due diligence had been taken.
3. Objective market abuse test. The test under section 118 was wholly objective. The relevant question was whether the transactions or orders gave, or were likely to give, a false or misleading impression as to supply, demand or price. The FCA did not need evidence from actual market participants.
4. Attribution. Applying Meridian Global Funds Management v Securities Commission and Jetivia SA v Bilta Limited, the traders’ conduct was attributable to the corporate defendants under ordinary agency principles. The “directing mind and will” test was unnecessary for the objective question whether market abuse had occurred.
5. Proof and findings. The civil standard of proof applied, with appropriate regard to inherent improbabilities. The repeated saw-tooth pattern of orders, cancellations, aggressive trading in the opposite direction, wash-trades and resulting price movements established deliberate layering and spoofing within section 118(5).
6. Injunctions and penalties. “Reasonable likelihood” in section 381 meant a real possibility of repetition that could not sensibly be ignored, having regard to the seriousness of the potential harm. Injunctions were therefore appropriate. Penalties were assessed by reference to the relevant DEPP framework, although the court was not bound by it and corrected the approach to disgorgement where benefits had not been received.
7. Orders. Injunctions were granted. Penalties were imposed of £1.46 million on DVI, £5 million on Mineworld, £410,000 each on Mr Banya and Mr Pornye, and £290,000 on Mr Brad.

First-instance decision. No appellate history was stated in the judgment.