IFR Editor-at-large Keith Mullin
WAS IAN HANNAM’S defence strategy to reverse the £450,000 insider trading fine imposed on him by UK regulators a little bizarre? I certainly thought so. At its heart, of course, lies a claim originally made by the then Financial Services Authority about two emails sent in 2008 by the veteran banker and until recently chairman of ECM at JP Morgan on behalf of his client Heritage Oil. The emails referred to a potential offer for Heritage and an oil find in Uganda and, the FSA alleged, contained market-moving information.
The case has since been taken over by the Financial Conduct Authority, the new body established under the auspices of the Bank of England which has as one of its goals the targeting of high-profile individuals to highlight its zeal to stamp out market abuse. The appeal case is a test of reputation not just for Hannam and the FCA, but also for JP Morgan’s compliance and governance regime. A lot is resting on its outcome.
Perhaps more so in the case of the new regulator whose rather unfortunate acronym has already had it labelled as … err … well let’s put it this way … something akin to going forth and multiplying and something about a meeting next Tuesday. If you get what I mean, shame on you.
I’m not going to comment on whether Hannam is guilty of insider trading; that’s a dangerous path to take and in any case I have no idea. I suspect the appeal will rest, to a large extent, on the combination of a strict definition of insider trading and the perceived degree of specificity contained in Hannam’s emails.
What I’m referring to when I say the testimony is odd is that in seeking to prove he wasn’t guilty of passing inside information, Hannam said the information in his emails was fictitious: “I either made it up or I was putting a spin on it to get a meeting (with the minister),” Reuters reported Hannam telling the Upper Tribunal in London’s High Court on July 3. In other words, what he said wasn’t true therefore it couldn’t have been inside information.
I guess that’s a truism but I must say it still left me speechless. For a man seeking to rebuild his reputation in order to get a gold operation off the ground in Afghanistan and establish his Strand Partners boutique, I’m not entirely sure that getting off on a serious charge because you made up information is necessarily a winning move. Hannam said his motive for sending the email was to serve Heritage Oil and his close friend Tony Buckingham, Heritage’s founder and CEO. At what cost, though?
The case is a test of reputation not just for Hannam and the FCA, but also for JP Morgan’s compliance and governance regime
I USED TO cover Ian Hannam 20 years or so ago when I was running IFR’s ECM desk and he was head of ECM in London at Robert Fleming, the investment bank acquired by Chase Manhattan Bank in 2000 prior to the latter’s merger with JP Morgan a year later. We would speak at least weekly, invariably more.
At the time, Fleming was a leading light in originating equity and Euroconvertible deals for companies from all over Asia. The firm had origination coverage as well as sales and trading desks all over Asia at a time when few other banks did and it covered a ton of companies on its research desk. The firm gained an awesome reputation, largely created by Hannam in London and head of Asia ECM Colin Hermon. They were a formidable duo. Who remembers the awesome US$900m international equity placement they did for Pakistan Telecom back in 1994?
In those days, Hannam was easily the most fiery, aggressive, energetic ECM guy in London. And that was on his quieter days! He had a pretty intimidating and occasionally bullying demeanour – not necessarily to me but certainly to his peers at other firms. I haven’t spoken to him for some time but from the press coverage it doesn’t sound like he’s changed much.
THE FACTS OF the Heritage case as reported certainly offer a fascinating glimpse into the murky world of M&A but at the same time they also offer a rather disturbing insight into what investment bankers think they need to do to generate deal flow.
Disturbing because in the quest to generate fee revenue, it’s pretty clear bankers have engaged and I suspect continue to engage in behaviour that is not professionally acceptable: making things up, exaggerating the truth, making false claims, over-promising have all appeared constantly as modes of doing business in investment banking even in this world of supposedly over-bearing compliance.
It’s simply not good enough. Bankers accuse me of being sanctimonious when I make comments berating bad behaviour. Bearing in mind that this is an industry that’s brought shame on itself and which was complicit (albeit not solely) in wreaking havoc on the world, such pushback is pretty rich. But that’s another story …
In this case, it appears that no-one made any personal gain from the information in Hannam’s emails and the regulator didn’t question his honesty or integrity and he retained his “fit and proper” professional status. But my question is this: can gaming parties to a potential transaction square comfortably with honesty and integrity? Answers on a postcard.
