MARKET ABUSE - Conditions - Information not generally available to the market -
Transactions in 2003 - Whether Applicants traded in shares in reliance on inside
information, being information not generally available to market - No - Condition (a)
of s.118(2) of FS&MA 2000 not satisfied - No penalty to be imposed
PROCEDURE - Submission of no case to answer - Tribunal's discretion in dealing
FINANCIAL SERVICES AND MAR
Case No FIN/2005/0011
(1) TIMOTHY EDWARD BALDWIN
(2) WRT INVESTMENTS LIMITED
FINANCIAL SERVICES AUTHORITY
Andrew Bartlett QC (Chairman)
N W Douch
T C Carter
Sitting in public in London on 19, 20, 21 December 2005
Date of written decision: 24 January 2006
For the Applicants Jason Mansell
For the Respondent Ian Stern
© CROWN COPYRIGHT 2006
1. The allegation in this case is that the first applicant, Timothy Baldwin,
through his investment vehicle WRT Investments Limited ("WRT"), the
second applicant, engaged in market abuse as defined by s 118 of the
Financial Services and Markets Act 2000 ("the Act" or FSMA"). For this
the Financial Services Authority ("the Authority" or "the FSA") imposed a
penalty of £25,000 on Mr Baldwin and £24,000 on WRT.
2. The FSA alleged that on 28 or 29 July 2003 Mr Michael Nolan, the Chief
Executive Officer of Minmet PLC (an Irish registered and incorporated
company specialising in mineral exploration and mining activities)
received a telephone call from Mr Baldwin, who worked for Canaccord
Capital (Europe) Limited ("Canaccord") as an equity salesman selling
securities in smaller companies to the UK institutional market. Mr
Baldwin had an association with Minmet going back several years as a
result of his previous employment. It was said that during the alleged
conversation Mr Nolan gave Mr Baldwin information about the positive
July performance of Minmet's principal asset, a gold mine in Sweden.
This was relevant information that was not generally available to the
market. WRT purchased shares in reliance on this information. The
positive information was notified to the market in an announcement on 6
August 2003. This announcement caused Minmet's share price to increase
by more than one hundred per cent. Not long after, WRT sold the shares
and reaped a profit.
3. Mr Baldwin and WRT contested this allegation on various grounds. The
principal ground was that no such telephone conversation took place.
4. After a brief adjournment at the end of the three day hearing we
announced that our decision was in the applicants' favour, and that our
written reasons would follow.
5. Section 118 of the Act defines market abuse as behaviour which occurs in
relation to qualifying investments traded on a market to which the section
applies, which satisfies at least one of the conditions set out in s 118(2),
and which is likely to be regarded by a regular user of that market who is
aware of the behaviour as a failure on the part of the person concerned to
observe the standard of behaviour reasonably expected of a person in his
position in relation to the market.
6. The parties were in agreement that the shares with which the present case
is concerned were traded on a market to which s 118 applies, namely, the
London Stock Exchange.
7. Of the three available conditions referred to in section 118(2) the one that
is relevant to the facts and circumstances of this case is that set out in
subsection (2)(a) which reads as follows:
"the behaviour is based on information which is not generally
available to those using the market but which, if available to a regular
user of the market, would or would be likely to be regarded by him as
relevant when deciding the terms on which transactions in investments
of the kind in question should be effected."
8. By s 119 of the Act, the FSA is under a statutory duty to issue a code
giving guidance to those determining whether or not behaviour amounts to
market abuse. Under s 122(2), the code applicable at the time the
behaviour occurred "may be relied on so far as it indicates whether or not
that behaviour should be taken to amount to market abuse". The most
relevant parts of the Code of Market Conduct (MAR 1) to this case are:
MAR 1.2 (the regular user test), MAR 1.4.4 (behaviour which amounts to
market abuse); MAR 1.4.5 (circumstances in which information is to be
regarded as generally available to those using the market), and MAR 1.4.9
(relevant information). In the event, because of our view on the facts, it is
not necessary for us to make further reference to these provisions.
9. The parties agreed many of the relevant facts. As agreed they were as
10. Mr Baldwin is an experienced investor and equity salesman, having been
involved in the market for about 18 years. At the time of the relevant
trades he was 39 years old. His employment history is:
• January 1988 to April 2000 at Greig Middleton;
• July to October 2000 at Tiger as a non-executive director;
• September 2000 to September 2002 at Investec;
• 14th October 2002 to June 2004 at Canaccord.
11. Mr Baldwin was an approved person and had been since the scheme's
inception in December 2001. He held controlled functions as an
'investment adviser' (CF21) and as a 'customer trader' (CF26). Although
an equity salesman, in the twelve months or so before this incident he had
spent about seventy per cent of his time doing "primary issue work which
is the...placement of new shares in companies to finance whatever". This
would involve "organising meetings for institutional clients, usually as an
insider" and taking them through the structure of the deal and "receiving
their orders as part of a book-building exercise for the placing" (Baldwin
interview 26.5.04 Tape 2 p.3/99-4/110).
12. Mr Baldwin held a number of accounts through which he traded for his
personal requirements. One of those accounts, WRT Investments, is the
vehicle through which Mr Baldwin undertook the trades with which the
Tribunal is directly concerned. WRT was incorporated in 1998 and is a
private investment company controlled by Mr Baldwin. It is run as his
"own personal portfolio" of which he owns "the majority of the controlling
equity" and the rest is "largely family...and some friends" (Baldwin
interview 26.5.04 Tape 3 p.7). In an account opening form with Brewin
Dolphin Securities Ltd dating from March 2003 Mr Baldwin stated that he
held investments of £1 million. In the year December 2002 to December
2003 WRT carried out over 100 trades.
13. Minmet is an Irish PLC which specialises in the mining sector. The
company is listed in Dublin but it is also quoted for trading on the London
Stock Exchange's SEAQ system. Virtually all of the trading in Minmet
shares takes place in London. At the relevant time Minmet had a number
of exploration projects worldwide but the Bjorkdal mine was its only
14. In June 2002 Minmet shares were trading at around 11 pence. In July 2002
the Portuguese Supreme Court reversed an earlier favourable decision
leading to the share price falling to 7 pence. In August 2002 Minmet
announced that it was closing its trial mining operation in Brazil at a cost
of around $19 million, causing its share price to drop to 2 pence. In
October 2002 Minmet received a telephone call from a Swedish gold
producing company that owned the Bjorkdal gold mine with a view to
possible mutual assistance. The gold mine was attractive to Minmet and
Minmet was attractive to the Swedish company as Minmet had both cash
and good management, unlike International Gold Exploration ("IGE") who
were the company managing the mine at the time.
15. There followed many meetings and discussions and on 27 January 2003
Minmet issued an announcement that they were "in advanced negotiations
and are finalising due diligence in relation to the proposed purchase by
Minmet of a 100% interest in the Bjorkdal gold mine..."
16. On 26 March 2003 Minmet issued an announcement stating that they had
completed the acquisition of a 50% interest in Bjorkdalsgruvan, the
company that owned the mine. On 27 March 2003 Minmet issued an
announcement stating that IGE had unanimously approved an option
agreement which gave Minmet the right to acquire the remaining 50% of
Bjorkdal sgruvan. Between 1 January and 30 July 2003 the Minmet share
price had gone no higher than 2.13 pence. On 29 July 2003 the closing
share price was 1.65 pence and on 30 July it was 1.79 pence.
17. In the last two weeks of July there was cause for optimism within Minmet
in relation to the production of gold from the Bjorkdal mine. On Tuesday
15 July 2003 the general manager of the mine informed the management
that the grade of ore being mined was higher than expected. On
Wednesday 16 July they were informed that the mine had produced 25
kilograms of gold in one day, whereas it had been producing between 75 to
90 kilograms per month. On Wednesday 23 July the management
discussed the need to make an announcement updating the market. It was
decided that an announcement was likely to be necessary but that, bearing
in mind the fluctuating daily performance, the entire month's performance
should be reviewed before making a final decision.
18. On Monday 28 July Mr Nolan started to draft an announcement. On
Tuesday 29 July at 13.51 he e-mailed the draft to Rolf Nordstrom
(Chairman of Minmet), David Hall (Director), Michael Johnson (non-
executive director) and Alan Mooney (Company Secretary). On Friday 1
August the formal wording of the announcement was agreed at a Minmet
Board meeting. The next day (2nd) a revised draft was circulated to the
management. On Monday 4 August (which was a Bank holiday in Ireland)
the announcement was embargoed until 7 a.m. on Wednesday 6 August
2003 to give IGE time to prepare their announcement to the Oslo Stock
Exchange. At 7 a.m. on 6 August 2003 the announcement was released.
Minmet's share price went from 2.23 pence (5 August) to 3.9 pence (6
August) and then to 5.38 pence on 7 August (an increase of more than 140
per cent over the closing price the day before the announcement).
19. Tiger is a UK company whose shares are traded on the London Stock
Exchange. It was created by Minmet in 1996 and at that time was called
Crediton Minerals PLC. Mr Baldwin was an integral part of its relaunch in
October 2000 as Tiger — including the raising of about £3.6 million. On 16
January 2002 Minmet announced that it was to sell its entire shareholding
in Tiger. Mr Nolan remains a non-executive director of the company.
Financial statements show that in February 2003 Minmet accounted for
about 35% of Tiger's investment portfolio. In January 2003 Tiger
purchased nearly 18 million Minmet shares nearly tripling their investment
in that company. At 11.09 a.m. on 7 August 2003 Tiger made an
announcement that the movement in its own share price was "due to the
movement in the share price of Minmet PLC".
20. Minmet had used the services of Davy Stockbrokers in Dublin since 1988
but the company felt that it was necessary to acquire a London corporate
broker in order to market and develop the company to institutional
investors. They made presentations to various institutions and were
successful in obtaining limited financial backing. In about 1997 Minmet
met Mr Baldwin when he was working for Greig Middleton and they
developed an informal broking relationship. The company managed to
raise about £1 million which was, at that time, the most it had managed to
raise. Greig Middleton was not formally appointed as Minmet's corporate
broker until July 1999. That formalisation took place in advance of a major
fundraising whereby Greig Middleton raised about £11.55 million for
Minmet. Mr Baldwin was instrumental in raising that finance. In October
2000, by when Mr Baldwin had moved to Investec, he arranged a meeting
between Minmet and Investec who then became their corporate brokers in
February 2001. However, the collapse of the share price in August 2002
meant that Minmet were left with no corporate broking support (that is, in
21. Since the share price collapse in August 2002, Minmet had tried very hard
to rekindle a London broker association in order to help re-establish their
credibility in the market place. They had a first meeting with Canaccord at
the end of October 2002 and a further meeting in November 2002 — on
both occasions Mr Baldwin was present. The latter meeting was prompted
by the opportunity to acquire the Bjorkdal gold mine. (Canaccord is
renowned as a broking house specialising in the mining sector.) Moreover,
Minmet had this very strong relationship with Mr Baldwin since 1997.
Thereafter, Mr Nolan had no contact with Mr Baldwin from May 2003 up
to the time of the alleged call of 28 or 29 July 2003.
22. As mentioned, shares were purchased on behalf of WRT, a company in
which Mr Baldwin is one of three Directors, essentially an 'investment
club' for various friends and family members in which Mr Baldwin makes
all investment decisions:
• 30th July 2003 (16.33 p.m.) — purchase of 300,000 Minmet
shares at 1.8 pence per share
• 31st July 2003 (9.35 a.m.) — purchase of 300,000 Minmet
shares at 1.85 pence per share
• 4th August 2003 (10.13 a.m.) — purchase of 500,000 Tiger
shares at 1.2 pence per share. Tiger Resource Finance PLC ("Tiger")
was created by Minmet in 1996. At the relevant time, a shareholding in
Minmet accounted for about 34% of Tiger's investment portfolio. Mr
Baldwin had been a non-executive director of Tiger for several months
in the summer of 2000 when he was between jobs.
23. All 600,000 Minmet shares were sold by the 1st October 2003 (400,000 of
them within a few days of the announcement):
• 7th August 2003 (8.57 a.m.) — sale of 200,000 Minmet shares at
5 pence per share.
• 7th August 2003 (9.46 a.m.) — sale of 100,000 Minmet shares at
6.25 pence per share.
• 11th August 2003 (8.06 a.m.) — sale of 100,000 Minmet shares
at 6.1 pence per share.
• 1st October 2003 (14.03 p.m.) — sale of 200,000 Minmet shares
at 4.7 pence per share.
24. The total profit made by WRT from the Minmet trades amounts to
25. Mr Baldwin is an experienced and professional investor who was well
aware of the rules at the relevant time. He had been involved with Minmet
in a professional capacity for a number of years and was an approved
person at the relevant time. It was also common ground that Mr Baldwin
had an unblemished record as an institutional broker. There was
undisputed evidence from Mr Metcalfe, former chairman of Minmet, that
he held both Mr Baldwin and Mr Nolan in the highest regard and believed
that they each maintained high standards of integrity in their profession.
SUBMISSION OF NO CASE TO ANSWER
26. Mr Mansell indicated that he wished to make a submission of no case to
answer at the conclusion of the Authority's evidence. We record here our
approach to this, in case it is of any assistance in other cases.
27. Rule 19 of the Financial Services and Markets Tribunal Rules 2001 directs
the Tribunal to conduct all hearings in such manner as it considers most
suitable to the clarification of the issues before it and generally to the just,
expeditious and economical determination of the proceedings. This gives
the Tribunal a discretion to entertain a submission of no case if the
Tribunal considers it appropriate to do so. That discretion has to be
exercised judicially, in the light of the statutory framework under which
the Tribunal operates. Where a matter is referred to the Tribunal, the
Tribunal's task is to hear it afresh and decide what action, if any, the FSA
ought to take in fulfilment of the statutory objectives, which include
maintaining market confidence and the protection of consumers. This is a
public purpose, not merely the concern of the parties to the reference.
28. It did not appear to us that there was a clear-cut defect in the Authority's
case. The issues depended on findings of fact. While it was for the
applicants to decide what evidence they wished to call, our view was that
we would be materially assisted, in reaching our decision on what action
the Authority ought to take in fulfilment of the statutory objectives, by
hearing Mr Baldwin's evidence. We were therefore not minded to
entertain a submission of no case to answer. Mr Mansell accepted this and
did not seek to press his submission.
29. In the event, Mr Baldwin's evidence has been pivotal to our decision.
THE WITNESS EVIDENCE
30. The Authority called as witnesses Mr Nolan of Minmet, Charles Olver of
the FSA (who was tendered for cross-examination at the applicants'
request), and the two experts, Keith Martin and Euan Worthington. We
received written statements from Cassandra Fuller and Julia Neal of the
FSA. On the applicants' side, in addition to Mr Baldwin's oral evidence,
we received written statements from William Parsey and Jeremy Metcalfe.
31. We found no reason to doubt the good faith of any of the witnesses, who
we considered were all doing their best to assist us. Mr Nolan and Mr
Baldwin were each cross-examined at some length, which gave us a good
opportunity to assess their evidence. We give below our reasons for
preferring the evidence of Mr Baldwin to that of Mr Nolan on the vital
issue of the telephone call. The two experts were well qualified to give
opinions on the matters covered in their reports.
32. We also record that we have been greatly assisted by the FSA's very clear
organisation of the hearing bundles and by the provision of a daily
verbatim transcript of the hearing.
THE NATURE OF THE FSA'S CASE CONCERNING THE TELEPHONE
33. The Authority's case was based on:
(1) Mr Nolan's recollection of a telephone conversation with Mr
(2) the timing of the three purchases of shares shortly before the
announcement of 6 August 2003, together with the sales of Minmet
shares shortly afterwards and the fact that a profit was made,
(3) expert evidence, which was relied on to show that Mr Baldwin's own
explanations of the investment strategy and timing of the transactions
were illogical and hence not credible.
34. The contest was on points (1) and (3). Mr Baldwin denied the occurrence
of the alleged telephone conversation prior to the 6 August 2003
announcement, and explained the purchases and sales as part of his
investment strategy at the time.
35. Owing to a combination of circumstances which were not ultimately in
issue, the only possible date for the telephone conversation to have taken
place was 29 July 2003. On the previous day Mr Baldwin was still on
holiday in Italy. On the following day Mr Nolan flew to Sweden.
36. The telephone call was said to have started as a routine call by Mr
Baldwin, by way of keeping in touch with Mr Nolan.
37. The Authority investigated the telephone records of Minmet, of
Cannacord, and of Mr Baldwin personally. There were records of a variety
of telephone conversations of Mr Nolan and of Mr Baldwin on 29 July
2003, but there was no record of any telephone conversation which could
have been the alleged conversation between Mr Nolan and Mr Baldwin. In
addition there was no contemporaneous or near contemporaneous written
record of any kind to show that the conversation took place. Two
particular features of the case follow from this absence of corroborative
38. First, the Authority's case involves that, by a remarkable and perhaps
(a) Mr Baldwin happened to make a routine call to Mr Nolan not
from telephones from which he made other calls on that day
(ie, his office telephone or his mobile), but from some
untraceable telephone (whether a payphone or an unknown
person's mobile), and
(b) Mr Baldwin's use of an untraceable telephone happened to
catch Mr Nolan at a time when Mr Nolan had important and
sensitive information which he incautiously revealed.
39. The second particular feature is that the Authority's case depends upon
satisfying us that Mr Nolan's recollection (with possible aid from the
expert evidence but unaided by any contemporary record) ought to be
preferred to the evidence given by Mr Baldwin.
WAS THERE A TELEPHONE CONVERSATION BETWEEN MR NOLAN
AND MR BALDWIN ON 29 JULY 2003?
40. We start by acknowledging the difficulty which both Mr Nolan and Mr
Baldwin faced, in being asked for precise recall of the timing and content
of conversations or thought processes which took place more than two
years ago, and which neither of them was first asked to recall until some
while after the time in question.
Evidence concerning the alleged telephone call
41. Mr Nolan's first account of the relevant events over the material period
was given in the detailed five page enclosure to his letter to the Authority
dated 30 September 2003. The Authority had sought details of the events
surrounding the August announcement and of all contacts with WRT and
others. Mr Nolan's response described a telephone conversation with a Mr
Wilson on 29 July 2003 but did not say that there had been any telephone
conversation on that date (or any other date) with Mr Baldwin. A vague
comment was made that "any information disclosed by MinMet to Mr
Baldwin was in the context of that [the hoped for] professional
relationship and on a strictly confidential basis".
42. We regard it as significant that in this first account, which was a detailed
and apparently very careful written account, there was no mention of any
telephone conversation with Mr Baldwin at the material time. The contrast
with what Mr Nolan wrote about the conversation with Mr Wilson is
striking. According to his letter Mr Nolan sought to assure Mr Wilson
"that the lack of news flow from MinMet should not be viewed negatively
and it was the Company's intention to update the market on the
Company's activities in the near future". This implied that Mr Wilson
should expect a positive announcement. It would have been
understandable if Mr Nolan had been unforthcoming about his
conversations, for fear of being criticised over his lack of caution in
disclosing price sensitive information. It is to his credit that he was candid
with the regulator on this topic. His frankness about his conversation with
Mr Wilson (who also dealt in Minmet shares at the material time,
following the conversation with Mr Nolan) indicates to us that Mr Nolan
was not deliberately holding back material information for the purpose of
protecting his own interests. Either he did not recall any relevant telephone
conversation with Mr Baldwin (and made a cautionary remark in case
there had been one) or he was trying to protect Mr Baldwin. The latter
possibility was not raised with him when he gave evidence.
43. The first time that Mr Nolan said that there had been a specific
conversation with Mr Baldwin was in his letter of 24 October 2003,
responding to the FSA's letter of 9 October 2003. His response put the call
in the period 21-29 July 2003. The FSA's letter had included a request that
he "specify the content of the information provided''. The sum total of Mr
Nolan's answer to this very specific question was that he provided "certain
details on the promising July 2003 production figures at Bjorkdal to that
date and other on-going developments within the Company." Thus Mr
Nolan's first indication of a material conversation with Mr Baldwin came
nearly 3 months after the material events. This indication was uncertain as
to date and meagre as to content, and sits uneasily with the absence of any
such allegation in Mr Nolan's first account of events.
44. Mr Baldwin was first asked about the alleged conversation in interview
under caution on 26 May 2004, ten months after the events. The
information sent to Mr Baldwin prior to the interview had contained a list
of WRT's trades in Minmet shares for the whole of 2003, there being
twelve such trades in that period. It was some hours into the interview
before the first question about the alleged telephone call was put to him.
He was told that the FSA's information was that he had called Mr Nolan
on 29 July 2003, and that Mr Nolan had given him information about the
production figures. His first response was that he did not recall the
conversation. He asked if it had been taped, and was told that it had not.
Mr Olver said he thought the reason was that it had been made on his
mobile. This gave the false impression that there was some record showing
that the call was made on his mobile. This was a slip by Mr Olver.
45. The interview transcript shows Mr Baldwin's reaction of surprise to this
BALDWIN: (Long pause) Well (pause) I do not recall that, I have to
say, I really don't recall it. Um, I think it's very unusual because
(pause) why would he make me an insider about a week before the
figures? I think — I find it unusual erm.
I honestly don't recall any announcement, sorry any
Telephone conversation at that time, all I can remember, as I said, all I
can remember is the fact that — all I've tried to rack my brains about
you know looking back at the transaction, why did I do it and all the
rest of it. ...
46. Mr Baldwin maintained a consistent absence of any admission that such a
call took place at the material time before the share purchases.
47. When Mr Nolan and Mr Baldwin gave their evidence to the Tribunal, it
seemed to us that they both understood the distinction between (a) actual
recollection and (b) reconstruction from other known facts, but they
differed in their adherence to the distinction.
48. We were impressed by Mr Baldwin's frankness when he said that he could
not actually remember and was reconstructing. This was particularly
apparent when he was asked about why he had made the decisions to
purchase Minmet and Tiger shares. The temptation must have been very
strong for him to work out a logical justification of the share purchases and
by a process of wishful thinking present it as actual recollection in order to
bolster his case. He resisted this temptation. He was able to explain to us
his general investment strategy, and the trends which he regarded as
relevant at the time, but made clear that (as was to be expected) he did not
have actual recall of the thought processes which led to the particular
investment decisions and was only able to reconstruct them from
knowledge of how he usually made such decisions.
49. In contrast, Mr Nolan varied in the clarity with which he adhered to the
distinction between recollection and reconstruction. Because of the
importance of the factual dispute over the telephone conversation we
directed that he should give the material part of his evidence in chief
orally, rather than merely confirming his witness statement. We found this
helpful. In addition, he spoke of the conversation in cross-examination. It
became clear to us that, while he had an actual recollection in his mind of
having had a conversation with Mr Baldwin, he had no actual recollection
of the content of the conversation. In his evidence about it he frequently
used the expression ''''would have"'. The content was reconstructed from the
other circumstances pertaining on 29 July 2003, in particular his
preparation of the draft announcement, as being what he "would have"
said. We consider that the same process of reconstruction accounts for
what Mr Nolan wrote on 24 October 2003 concerning the contents of the
50. After that date Mr Nolan gave a number of further accounts in interview or
in writing. The successive accounts evince a process of increasing detail
and reducing uncertainty. In interview on 26 February 2004 Mr Nolan
narrowed down the date for the call to 28 or 29 July, with a preference for
the latter. As to content, he said: I would've given an update in
accordance with what was happening. By 17 February 2005 Mr Nolan
was 80/90% certain that the call took place on 29 July. (In this context
even 20% uncertainty is important to consider, bearing in mind Mr
Baldwin's case.) The culmination was the positive description of the
content of the conversation given in his witness statement for the Tribunal.
To put it shortly, "I would have" evolved into "I did". Whilst it is possible
for close review of events to revive genuine lost recollections, this process
of evolution by its very nature warns us to be cautious about accepting all
Mr Nolan's evidence about the telephone conversation at face value.
51. There were other difficulties in Mr Nolan's account. Mr Mansell pointed
out that Mr Nolan had no reason to disclose price sensitive confidential
information to Mr Baldwin at a time when there was not even a broking
relationship in place between Minmet and Canaccord. Indeed, to give him
such information would put him 'offside' and prevent him doing his job in
conducting any transactions in Minmet shares. When these matters were
put to Mr Nolan in cross-examination, it seemed to us that Mr Nolan had
no satisfactory explanation.
52. Mr Nolan stated that his confidence over the date of the conversation,
having ruled out dates when the circumstances were such that it could not
have taken place, was due to his associating it in his mind with other
events, such as his calls to Mr Wilson and Mr Metcalfe, his drafting of the
announcement, and his departure for Sweden. He said 29 July 2003 was an
unusual day. While this is a reasonable point to make, it does not resolve
the question whether the association with the other events and with 29 July
2003 is truly correct or is based on faulty recollection. If the association is
correct, it is strange that it did not exist in Mr Nolan's mind when he wrote
his first account on 30 September 2003.
53. From the nature of the case, it was very improbable that Mr Baldwin had
acted on insider information and yet was genuinely unable to remember
having done so or was mistaken about it. Realistically, as Mr Stern for the
FSA accepted, Mr Baldwin was either innocent of the matter alleged or
deliberately lying. In addition to being realistic about his ability to
recollect, and alert to the distinction between recollection and
reconstruction, we found Mr Baldwin to be straightforward, careful and
candid in the way he gave his evidence, and neither evasive nor
argumentative. During closing submissions we asked Mr Stern to indicate
what features of Mr Baldwin's evidence should assist us in concluding that
it was dishonest and that he should be disbelieved. Mr Stern was not able
to point to anything which demonstrated that Mr Baldwin was not telling
54. In support of a preference for Mr Nolan's account Mr Stern pointed to the
interesting feature that Mr Nolan recalled Mr Baldwin saying something to
the effect that "we" or "I" had dealt Minmet recently. It was submitted that
Mr Nolan took this to be a reference to Canaccord's dealings and not Mr
Baldwin personally, and that this was consistent with the fact that Mr
Baldwin, in his capacity as a broker for Canaccord had dealt Minmet
shares in mid-June 2003. Mr Stern commented, if the telephone call did
not take place this was "a lucky guess" by Mr. Nolan.
55. Mr Stern also drew attention to Mr Baldwin's evidence that he believed
that he had spoken to Mr Nolan on the telephone in September 2003. He
submitted that we should disbelieve this evidence because it was not
contained in Mr Baldwin's interview answers or in his written witness
statement, and because Mr Nolan's evidence was that he had not taken or
returned the call which Mr Baldwin made to him in September 2003. The
latter was supported by Mr Nolan's letter of 24 October 2003 which stated:
"Michael Nolan has also received three telephone calls from Tim
Baldwin, one in September 2003, one on 9 October 2003 and a third
on 23 October 2003, none of which were returned ..."
56. We have considered these points. We find it unsurprising that the
September call was not mentioned in Mr Baldwin's interview answers.
The specific telephone call allegation was sprung on him without prior
warning in the course of his very long first interview. He was not asked
about the September call. At the time of the second interview he had had
the opportunity of consulting his telephone records, and raised as a
speculation the possibility that the call remembered by Mr Nolan may
have been one that took place on 31 July 2003, after the two Minmet share
purchases, notwithstanding that Mr Baldwin himself had no recollection of
it. In fact this particular call could not have been taken by Mr Nolan
personally, since he was in Sweden at the time, but it was not suggested to
us that Mr Baldwin knew this at the time of preparing for the second
interview. If the 31 July call appeared a possibility worth exploring, it is
understandable that Mr Baldwin did not focus at that time on the
57. We were told by Mr Mansell, and Mr Stern accepted, that the September
call was mentioned in Mr Baldwin's representations to the RDC in 2004,
and therefore long before his witness statement of 26 October 2005. The
absence of the September call from the witness statement was in our view
a slip of no significance.
58. When Mr Baldwin gave his evidence to us about the September 2003 call,
he did so with moderation. He said he recollected that the call had been
made and told us why he thought it was made and what it would have
covered, but candidly explained that he had no actual recollection of the
59. We draw attention to the fact that Mr Nolan's letter of 24 October 2003,
while it gave dates for the two other calls, did not give a date for the
September call. This suggests to us that in regard to the September call Mr
Nolan was relying on memory rather than any written record. If this call
took place in early September, that was before Mr Nolan was warned not
to speak to Mr Baldwin, and he would have had no reason not to take or
return the call.
60. In addition, if Mr Baldwin spoke to Mr Nolan in early September, that
would explain Mr Nolan's recollection that Mr Baldwin had said
something to the effect that "we" or "I" had dealt Minmet recently, since
WRT had made three sales of Minmet shares in August. This is consistent
with what Mr Nolan actually said in interview on 26 February 2004, which
was that he took Mr Baldwin's remark "to mean that Canaccord or he had
dealt in Minmet shares in the recent, recent past".
61. It seems to us to be possible, and indeed likely, that Mr Baldwin did speak
to Mr Nolan in early September, and that there has been a confusion in Mr
Nolan's mind over the timing of this conversation. This is consistent with
the evidence of Mr Metcalfe on a point which Mr Nolan did not recall. Mr
Metcalfe recalled Mr Nolan having indicated to him at some stage that he
had understood the telephone conversation with Mr Metcalfe, which Mr
Nolan associated with the day of the call from Mr Baldwin, to have been
when Mr Metcalfe was in France. It was not in dispute that Mr Metcalfe
was in France in September and not in July.
Explanations for the trades
62. The issue over the accuracy of Mr Nolan's recollections cannot be
separated from the issue whether there is an innocent explanation for the
timing of the purchases and sales of shares. If the timing cannot be
explained in the absence of inside information, that would corroborate Mr
63. Mr Stern submitted that, in the light of the expert evidence, we should find
that no expert investor would have acted in the way that Mr Baldwin did,
if looking at the matter rationally.
64. The applicants' reply to the Authority's statement of case set out at
paragraph 48 in six sub-paragraphs the considerations that were said to be
relevant to Mr Baldwin's investment decision to purchase the Minmet
65. Mr Keith Martin's remit was to give his opinion in relation to one only of
those considerations, namely, the increase in volume of Minmet shares
being traded daily in the two weeks or so prior to the purchase.
66. It seemed to us that Mr Martin was inappropriately constrained by his
remit. To consider the increase in volume in isolation from the other five
ingredients was an artificial exercise. Unsurprisingly, Mr Martin's
conclusion was that an experienced investor would not use a short period
of increased volume as the sole factor in making an investment decision.
This was not disputed by Mr Baldwin.
67. Mr Euan Worthington's remit was, first, to give his opinion on whether the
information said to have been passed to Mr Baldwin was relevant and not
generally available (which we need not consider further) and secondly, on
two of the six ingredients of Mr Baldwin's investment decision that were
identified in paragraph 48 of the applicants' reply.
68. The first ingredient that Mr Worthington addressed was the movements in
and prospects for the price of gold as seen at late July 2003. Mr Baldwin's
view was that the market trend of gold was upwards at the material time.
Mr Worthington's opinion was that a technical buy signal was not given
until 20 August 2003. By this he meant that, until that date, the gold price
had not broken out of a rising wedge chart pattern created from the
February peak to the April low and subsequent oscillations.
69. In cross-examination he explained that there are many different methods
used to identify technical buy signals and it would be possible to get ten
different opinions. We note that the price of gold was rising nearly every
day from 15 July to 28 July and that it was a matter of judgment whether
the fall over the four days following 28 July was a temporary reverse or
the commencement of a more settled trend. In our view Mr Baldwin was
not irrational in interpreting the trends, without the benefit of hindsight, in
a different way from Mr Worthington.
70. The second ingredient addressed by Mr Worthington was Mr Baldwin's
view that Minmet appeared undervalued when compared with the rest of
the sector and offered good value to an investor who took a positive view
on the direction of the gold price. On this, the gist of Mr Worthington's
view was that, if Mr Baldwin was truly bullish on the gold price, there
were a number of more recognised investments available which would
have offered better leverage. He also considered that WRT's portfolio was
not consistent with that of someone who was bullish on gold in July 2003,
since the gold mining equity holdings comprised only 5.8% of the value of
the portfolio at that time. He thought a bullish investor would have put
30% into the gold mining sector.
71. In cross-examination questions on the valuation of the company, Mr
Mansell sought to include in the valuation some $20M of historical
revenue, which Mr Worthington forcefully pointed out was incorrect.
Nevertheless, he agreed that 2.3p per share was a realistic figure for the
price of Minmet shares as at May 2003, and that after May 2003 the price
of gold went up. It followed that a speculative investor could have
regarded Minmet as undervalued in July 2003.
72. Mr Worthington also explained that the possibilities for alternative
investments cited in his report were merely examples; all he was saying
was that, out of hundreds of possibilities, Minmet was not the most likely
gold share to invest in at the time. He acknowledged the individual nature
of investment decisions.
73. We reject the FSA's submission as to the effect of the expert evidence. It
did not establish that no expert investor would have acted in the way that
Mr Baldwin did in the absence of inside information. Accordingly the
expert evidence did not corroborate the alleged telephone call.
74. Mr Baldwin in his evidence gave us a detailed account of his investment
strategy and of the trends which he was aware of at the time. It is not
necessary for us to set out the details. He regarded Minmet as undervalued
in July 2003. His reconstruction of his thinking at the time when he made
the purchases seemed to us to make good sense, and cross-examination did
not reveal any serious deficiencies in it. The contents of and balance in the
portfolio reflected his mandate from those for whom he was investing,
which was "to put in a well-spread bunch of speculative shares".
75. His explanation for the timing of the sale of the Minmet shares was that he
could not see any justification for Minmet being at a price as high as 6p
per share. That price was in his view not justified by the announcement
that was made on 6 August 2003 concerning production figures. He
therefore took profits. The Tiger shares were retained.
76. Our conclusion is that the purchases were not made because Mr Baldwin
received inside information from Mr Nolan: in our judgment Mr Nolan is
mistaken about the telephone call and Mr Baldwin's denial of it is correct.
The market's revaluation of Minmet after the announcement gave Mr
Baldwin the opportunity of profit, which he took.
Receipt of price sensitive information
77. There is a point of general relevance to which we should draw attention,
although it does not affect our decision. Mr Baldwin at one point in his
evidence stated that as an equity salesman it was his practice, unless
expressly made an insider, to assume that information given to him was in
the public domain and was information that he could use. In our view such
a practice is too broad. There may be circumstances where an equity
salesman should realise, from the nature of information given and the
circumstances in which it is imparted to him, that it is confidential price
sensitive information which he is not free to use or disseminate.
78. We have kept in mind that the burden of proof lies on the Authority, and
the standard of proof (the balance of probability) must take into account
the gravity of the allegation made. But our decision in the applicants'
favour does not depend on the burden of proof. On consideration of the
whole of the evidence we are satisfied that there was not a telephone
conversation between Mr Nolan and Mr Baldwin on 29 July 2003, and are
satisfied that WRT's trading in Minmet and Tiger shares was innocently
79. It follows that no finding should be made against the applicants and no
80. As requested, we reserve any possible arguments on costs for later
81. Our decision is unanimous.
Andrew Bartlett QC