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Guest post: Tiger, Plant, Freshfields and the Short Sellers – a look at legal ethics in ABS-owner Quindell’s woes

Charles Plant, outgoing Chair of the SRA who has led the SRA through one of the more interesting phases in its relatively young life, had some interesting thoughts in a recent valedictory speech (at legal futures).  In particular, flat-earther comments aside, he is reported as having offered this:

‘[‘Solicitor’ is] a brand, he said, which had been the core reason English law firms have conquered overseas markets: “The universal belief that the hallmark of an English solicitor is his or her integrity, honesty and trust… Solicitors understand that they must respect not just the letter of law and the letter of regulation; they understand that they must respect the spirit of regulation.’

Now this is a sentiment with which I have a great deal of sympathy, although I am less certain than Charles that it is a view commonly shared and adhered to in practice. Or rather that there are a number of rather high profile occasions when this has not occurred and we have yet to see the SRA act.* Rather than rehearse those and tire a busy readership, I thought I’d point out a new example. It comes from FT and is on the vexed topic of Quindell, but in fact is about the short sellers, not Quindell itself. Read it here if you have access.

The story says that a hedge fund has been using anonymous shell companies (Cayman Islands naturellement) to short sell Quindell shares. The story quotes a Freshfields partner, Michael Raffan, saying:

 ‘The purpose of the short selling disclose rules was to increase transparency and consistency across Europe…   The use of artificial structures to avoid disclosure is against the spirit of the rules.’

The FT is slightly uncertain on whether any rules have been broken but implies not stating: ‘It is not against the European rules to use a subsidiary but most other hedge funds use their own names.’  They also quote the FCA saying, ‘The EU position is that there’s no requirement for the beneficial ownership to be disclosed to regulators.’ It may be the FCA are taking a narrow legalistic view. Or it may be Mr Raffan is saying that its bad law here rather than suggesting the Hedge fund (or their lawyers) have acted unethically but on the face of it, what has happened here, assuming lawyers were involved (and may have advised against it, yet assisted anyway) it looks like a breach of Mr Plant’s statement on integrity.

*They may be acting on some – we ordinarily do not know until a decision to prosecute is taken.

Richard Moorhead is a professor of law and ethics at UCL, you can read his blog here.