All England Law Reports/2009/Volume 4 /R v McQuoid - [2009] 4 All ER 388 [2009] 4 All ER 388

R v McQuoid
[2009] EWCA Crim 1301 COURT OF APPEAL, CRIMINAL DIVISION LORD JUDGE CJ, COLLINS AND OWEN JJ 10 JUNE 2009 Sentence - Fraud - Insider dealing - Guidance - Criminal Justice Act 1993, Pt V. The defendant was a solicitor; as general counsel to a public limited company whose shares traded on the London Stock Exchange he became party to inside information relating to a take-over. He passed the information to his father-in-law and procured the purchase of shares in the company at a price of 13p per share on 30 May 2006. On 1 June 2006 the take-over was made public to the market. The offer price stood at 45p per share. The defendant's father-in-law made out a cheque for half the profit on the purchase, the defendant filled in his own name as the payee and the cheque was paid into his bank account. Both men were charged with insider dealing under Pt V of the Criminal Justice Act 1993. They pleaded guilty but were convicted after trial in the Crown Court. The defendant was sentenced to eight months' imprisonment; a confiscation order and an order for payment towards the costs of the prosecution were also made. The defendant appealed against sentence. The court gave general guidance to sentencing for insider dealing offences. Held - Relevant considerations for sentencing decisions for insider dealing were: (i) the nature of the defendant's employment or retainer, or involvement in the arrangements which had enabled him to participate in the insider dealing of which he was guilty; (ii) the circumstances in which the defendant had come into possession of confidential information and the use which he had made of it; (iii) whether the defendant had behaved recklessly or acted deliberately and dishonestly; (iv) the level of planning and sophistication involved in his activity, the period of the trading and the number of individual trades; (v) whether the defendant had acted alone or with others and, if acting with others, his relative culpability; (vi) the amount of anticipated or intended financial benefit (or loss avoided) as well as the actual benefit (or loss avoided); (vii) although the absence of any identified victim was not normally a matter giving rise to mitigation, the impact (if any) on any individual victim; and (viii) the impact of the offence on overall public confidence in the integrity of the market; because of its impact on public confidence it was likely that an offence committed jointly by more than one person trusted with confidential information would be more damaging to public confidence than an offence committed in isolation by one person acting on his own. Age and a guilty plea would always be relevant, as would good character; however, it had to be borne in mind that it would often be the case that an individual of good character had been trusted with information because of that good character. By misusing the information, the trust reposed as a result of the good character had been breached. In the instant case the sentence imposed was not excessive; the judge had made every allowance that he could make for the personal circumstances and the consequence to the defendant of his conviction. The appeal would therefore be dismissed (see [7], [8], [13], [14], [18], [19], below). [2009] 4 All ER 388 at 389 Notes

For insider dealing, see 11(1) Halsbury's Laws (4th edn) (2006 reissue) para 331. For the Criminal Justice Act 2003, Pt V, see 8 Halsbury's Statutes (4th edn) (1999 reissue) 960 Cases referred to in judgment R v Spearman [2003] EWCA Crim 2893. R v Clark [1998] 2 Cr App Rep (S) 95, CA. Application and appeal Christopher McQuoid was convicted on 27 March 2009 in the Crown Court at Southwark after a trial before Judge Testar and a jury of a single count of insider dealing contrary to s 52 of the Criminal Justice Act 1993. On 20 March 2009 he was sentenced to 8 months' imprisonment. His application for leave to appeal against sentence was referred by the registrar to the full court. The facts are set out in the judgment of the court. Jonathan Caplan QC and Gary Summers (instructed by Crowell & Moring) for the appellant. Michael Bowes QC (instructed by the Crown Prosecution Service) for the Crown. 10 June 2009. The following judgment of the court was delivered.

LORD JUDGE CJ. [1] Christopher McQuoid is 45 years of age, a man of good character with small dependent children. On 27 March 2009, in the Crown Court at Southwark, before Judge Testar and a jury, he was convicted of a single count of insider dealing. [2] The indictment alleged that he, together with James William Melbourne:
'on the 30th day of May 2006, each being an individual who had information as an insider which related to a particular issuer of securities, namely a proposed takeover of TTP Communications plc, acquired on a regulated market, namely the London Stock Exchange, 153,824 shares in TTP Communications plc, that were price affected securities in relation to that information.'

[3] On 30 March 2009 he was sentenced to eight months' imprisonment. Subsequent proceedings have resulted in a confiscation order in the sum of 35,000 and an order that he pay 30,000 towards the costs of the prosecution. The appellant's application for leave to appeal against sentence was referred by the registrar to the full court. We grant leave. [4] The co-accused, James William Melbourne, is the appellant's father-in-law. He was born in 1933. He, too, was convicted of insider dealing on the same count on the indictment. He was sentenced to eight months' imprisonment. However, that sentence was suspended for 12 months and there was a residence requirement.

[5] The appellant is a solicitor and former general counsel of TTP Communications plc. In the course of his employment he became party to inside information about a proposed takeover by Motorola plc. He passed the information which came to him on 11 May 2006 to Melbourne. Through [2009] 4 All ER 388 at 390 Melbourne he procured the purchase of just under 154,000 shares in the company at 13p per share on 30 May 2006. The sum paid in total was 20,3104360. [6] On 1 June 2006 the take-over was made public to the market. The offer price stood at 45p per share. Accordingly the profit on the purchase of the shares was 48,9194320. On 1 September 2006 a blank cheque for 24,4594360 (precisely half that amount) was given to the appellant by Melbourne. The appellant filled in his own name as the payee and the cheque was paid into his bank account. [7] In passing sentence the judge observed that the offence committed by the appellant was not to be treated as a victimless crime. We agree. The person who sold the shares in TTP at 13p may have been determined to sell on that date at that price, or at any price. However, he would not have sold at that price if he had known that the takeover was already agreed and would become public within 48 hours. But, as is always the case, only those very few people on the inside knew exactly what was going on. [8] Insider dealing has been an offence in England and Wales since 1980. The current offence is created in Pt V of the Criminal Justice Act 1993, which replaced the Company Securities (Insider Dealing) Act 1985, which in turn replaced similar provisions contained in ss 68 to 73 of the Companies Act 1980. Those who involve themselves in insider dealing are criminals: no more and no less. The principles of confidentiality and trust, which are essential to the operations of the commercial world, are betrayed by insider dealing and public confidence in the integrity of the system which is essential to its proper function is undermined by market abuse. Take-over arrangements are normally kept secret. Very few people are permitted to have advance knowledge of them. Those who are entrusted with advance knowledge are entrusted with that knowledge precisely because it is believed that they can be trusted. When they seek to make a profit out of the knowledge and trust reposed in them, or indeed when they do so recklessly, their criminality is not reduced or diminished merely because they are individuals of good character. [9] In the present case, as a result of this breach of trust, the appellant made a substantial profit for himself and a similar profit for his father-in-law. It is true that only one transaction was involved, but the profit arising from his single act of dishonesty was virtually 50,000. This fact demonstrates (if it needs to be demonstrated) that profits from even a single transaction of insider dealing can be very high indeed. We therefore emphasise that this kind of conduct does not merely contravene regulatory mechanisms. If there ever was a feeling that insider dealing was a matter to be covered by regulation, that impression should be rapidly dissipated. The message must be clear: when it is done deliberately, insider dealing is a species of fraud; it is cheating. Prosecution in open and public court will often, and perhaps much more so now than in the past, be appropriate. Although those who perpetrate the offence may hope, if caught, to escape with regulatory proceedings, they can have no legitimate expectation of avoiding prosecution and sentence. [10] In reality none of this is new. In R v Spearman [2003] EWCA Crim 2893, Hughes J (as he then was), giving the judgment of the court, said:
'[13] We have no doubt that the judge was right in this case to say that an immediate custodial sentence was necessary for these offences, and secondly, we are quite sure that he was right to conclude that there needed to be an element of deterrence in such sentences. There has been for some

[2009] 4 All ER 388 at 391

years now a good deal of publicity about the process of insider trading. It has been well-known for many years that it is conduct which is a serious criminal offence. We have little doubt that if the defendants had been professional City traders they could have expected a sentence significantly greater than the sentences which were imposed here. We

have been referred to the fact that new legislation enables some insider trading to be dealt with by means of regulatory or disciplinary process. That does not mean that the activity ceases to be a criminal offence which is likely to be prosecuted and if prosecuted likely in appropriate cases to be met by substantial sentences of imprisonment. Overall insider trading is a serious matter. On a large scale it corrupts the whole of the market in capital.'

We respectfully adopt those observations. [11] The broad considerations that we have identified thus far in the judgment largely reflect the judge's view and the way he approached the sentencing decision. We must now address Mr Jonathan Caplan QC's submissions in support of the appeal which, although addressed with his customary forensic finesse, come to no more this: that the appellant's sentence should be reduced because this happened to be a case under consideration by the Financial Services Authority (FSA) when it decided to change policy in relation to whether to proceed by way of prosecution rather than, as before, regulation. The appellant was the first; and others, no less culpable than he, were not prosecuted but were dealt with through the regulatory system. [12] We understand the submission, but the answer to it is simple. Those involved in the earlier investigations when a different policy was apparently adopted (and assuming that a different policy was adopted) may have been very fortunate. But their good fortune cannot enure to the benefit of anyone else. It is not suggested that the former policy of using the regulatory system misled the appellant into thinking that insider dealing, if proved, would be, or could be, other than criminal, or that he had some kind of reasonable expectation that it would or even that it might. In these circumstances the complaint that somehow the prosecution was unfair, or that the fact of prosecution was unfair, and that the sentence, if the prosecution were successful, should have reflected the kind of financial penalty that would have followed from a regulatory intervention is not sustainable. [13] Having considered the appeal against sentence we offer some general guidance to sentencers about the considerations which may be relevant to their sentencing decisions in cases of this kind. We pause to note, first, that the maximum sentence on conviction for this offence is seven years' imprisonment and that in these cases there are similarities with dishonest or reckless transactions in the stock market affecting shares. We also note that the guidance that we have prepared in draft has many echoes to the policy document in which the FSA's general approach to the prosecution of criminal offences in cases of market abuse is identified at paragraph 12.8 of the document now available to us. [14] These considerations seem to us to be relevant: (1) the nature of the defendant's employment or retainer, or involvement in the arrangements which enabled him to participate in the insider dealing of which he is guilty; (2) the circumstances in which he came into possession of confidential information and the use he made of it; (3) whether he behaved recklessly or acted deliberately, and almost inevitably therefore, dishonestly; (4) the level of planning and sophistication involved in his activity, as well as the period of [2009] 4 All ER 388 at 392 trading and the number of individual trades; (5) whether he acted alone or with others and, if so, his relative culpability; (6) the amount of anticipated or intended financial benefit or (as sometimes happens) loss avoided, as well as the actual benefit (or loss avoided); (7) although the absence of any identified victim is not normally a matter giving rise to mitigation, the impact (if any), where proved, on any individual victim; and (8) the impact of the offence on overall public confidence in the integrity of the market; because of its impact on public confidence it is likely that an offence committed jointly by more than one person trusted with confidential information will be more damaging to public confidence than an offence committed in isolation by one person acting on his own. Age and a guilty plea will always be relevant. So, too, will good character. However, it must be borne in mind that it will often be the case that it is the individual of good character who has been trusted with information just because he or she is an individual of good character. By misusing the information, the trust reposed as a result of the good character has been breached.

[15] We do not propose to attempt to set out a series of stages at which sentences should move to different levels, but we suggest to sentencing judges that the decisions of this court in R v Clark [1998] 2 Cr App Rep (S) 95 (allowing for inflation) and also the Sentencing Guideline Council's Definitive Guideline Theft and Burglary in a building other than a dwelling, under chapter E 'Theft in breach of trust' (pp 10 and 11), may provide valuable assistance. [16] In assessing sentence full weight must be given--and we have no doubt that the judge gave such weight--to the impact on the appellant and his family, as well as the destruction of his professional reputation. This will be significant for the future. There is now no financial benefit. All his profit has been confiscated, and, no doubt because he elected to deny his guilt so that it had to be proved, he has been required to pay 30,000 towards the costs of the prosecution. [17] We have noted the sentence on the appellant's father-in-law. However, that was assessed for reasons specific and personal to him. We can see no improper disparity between the two sentences. Equally, we cannot imagine that the judge's indication about how he intended to sentence the older defendant can or should have had any bearing on the sentence imposed on the appellant. [18] The reality is that the sentence imposed in this case was as merciful as it properly could have been. It was not excessive. As the case proceeded as a trial rather than a guilty plea, there could have been no ground for complaint if the sentence had been fixed at 12 months' imprisonment. It is clear to us that the judge made every allowance that he could for the personal circumstances and the consequences to the appellant of his conviction. [19] Notwithstanding Mr Caplan's efforts on the appellant's behalf, this appeal must be dismissed. Leave to appeal granted. Appeal dismissed.

Alison Pryor

Barrister.