Ian Hannam, formerly one of JPMorgan Chase & Co. (JPM:US)’s top merger advisers, was seeking more bidders for one of his clients, Heritage Oil Plc (HOIL), when he disclosed to an investor that another potential acquirer had made an offer.
“I believe that the offer will come in in the current difficult market conditions at 350 pence ($5.30) and 400 pence per share,” Hannam wrote to his contact. “I am not trying to force your hand, just wanted to make you aware of what is happening.” On the day Hannam sent the e-mail, Heritage stock closed at 204 pence in London.
The 2008 e-mail is one of two messages that form the basis of a proposed 450,000-pound civil market-abuse fine against Hannam by the U.K. markets regulator, which considers the content insider information. Hannam, formerly JPMorgan’s global chairman of equity capital markets, says the note was in the “best interest” of his client and is challenging the Financial Conduct Authority’s proposed sanction at a court hearing at the Upper Tribunal in London that started today.
“Heritage is an oil exploration company. Its share price is almost entirely based on the potential finding of oil,” Richard Boulton, a lawyer for the FCA, told the court today. “He acted without pausing to consider whether acting in the best interest of his client was consistent with his regulatory obligations.”
Hannam, who resigned from the New York-based bank after the fine, is one of the highest-profile finance workers the regulator has targeted. Hannam was among the bankers advising Xstrata Plc before it was acquired by Glencore International Plc. (GLEN)
At JPMorgan, which also served as a broker to Xstrata, Hannam helped the mining company sell shares in 2002, and was involved in many of its subsequent takeovers, including the $18.1 billion purchase of the Canadian nickel producer Falconbridge Ltd. in 2006. Then Xstrata Chief Executive Officer Mick Davis said after the fine was disclosed that Hannam had his “full support.”
The recipient of the e-mail was a representative of an organization that had interests in the Kurdistan region of Iraq, where Heritage had exploration projects, the regulator, then called the Financial Services Authority, said in a decision last year. Nine days after the e-mail was sent, Heritage disclosed it was in preliminary talks to sell some assets.
Hannam said today that he doesn’t believe that he broke any rules on the disclosure of inside information. His lawyers said he had to forgo substantial bonuses in 2008 and 2009 as part of the arrangements for terminating his employment with JPMorgan.
“I was acting in the proper course of my employment as a corporate financier, pursuing a transaction on behalf of my client, Heritage Oil & Gas,” Hannam said in an e-mailed statement as the trial started. “The case raises questions about the definition, and treatment of, inside information on the corporate finance side of the ‘Chinese Wall’ and clarification by the Upper Tribunal is important for London as a global financial center.”
No trades were made on the inside information and the regulator didn’t file criminal charges.
The recipient of Hannam’s e-mail later hired him to set up a fund for investments in Kurdistan.
Hannam, Heritage CEO Tony Buckingham and Chief Financial Officer Paul Atherton are scheduled to testify at the trial, which could last as long as two weeks.
Hannam, a former soldier, graduated from Imperial College London and London Business School, and trained at Salomon Brothers. In 1992, he joined Robert Fleming & Co., which was bought by Chase Manhattan in 2000. Four years later, he helped to set up JPMorgan’s joint venture with London-based Cazenove Group Ltd.
In a second e-mail a month after the initial message in 2008, Hannam told his contact and a second man that Buckingham “has just found oil and it is looking good.” Heritage announced a find later that month.
The FCA may have a harder case proving the second note contained inside information, said Harvey Dyson, a regulatory lawyer at Stephenson Harwood in London, who’s not involved in the case.
“‘Tony found oil’ -- what kind of oil, where, how deep, etc.?” Dyson said. “Whether this is, or is not, inside information isn’t a binary question.”
Boulton said that while the first e-mail was a “paradigm” example of inside information, the second is more “nuanced.”
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