Today’s surveillance technology, particularly for eComms, can not only identify incidents of market abuse, but it can also detect the intention to commit fraudulent acts like insider trading. Changes in behavior do not go unnoticed. New patterns like the timing of correspondence, the frequency of messaging and the participants on the receiving end of all that extra attention get noticed.
The world has been teetering on the edge of market abuse given an overnight shift from working in controlled environments under exacting compliance protocols to working from home on unapproved but popular eComms platforms like zoom and WhatsApp. The situation is rife for trouble.
How regulators and operators are managing fiscal compliance may have changed in response to the virus, but what needs to be done has not changed. Market Abuse Regulation (MAR) relaxed a little initially to give companies and their employees a chance to regroup once the COVID-19 lockdowns began, but expectations have since shifted. All organizations are now expected to have contingency market compliance policies and practices in place to reflect MAR: full adherence and compliance are also expected, no matter who you are.
The onus of compliance is currently on companies
According to the FCA and other market watchdogs, regulators relaxed reporting requirements across all industries and markets in response to COVID-19. They pushed the onus of compliance on the firms they regulate and acknowledged a gap in recording for many eComms platforms. But regulators collectively believe that there has been sufficient time since COVID-19 began to have closed that gap. Based on the number of market fraud tips submitted over the past few months, many experts think that it’s just a “matter of time” until the regulators catch up with all the suspicious order requests and formally commence investigations.
The FCA requires that both the prevention (i.e. intention) and detection of market abuse must be monitored for and reported on. All companies, and individuals, regardless of industry, are bound to the same market regulations that all shareholders and corporate officers are. Proving that there was an intention for market manipulation is not straightforward. In the absence of hard evidence, such as an eComms trail with aberrant patterns of behavior detected via a proactive monitoring effort, asset losses may be substantial and resulting litigation efforts may be thwarted.
Biotech in focus
Obviously, all eyes are now closely watching the field of biotech which simultaneously holds the potential to save the world and to be the focus of investigation for an unprecedented level of insider trading. This is why the market activity by the executive team of Moderna, 10-year old biotech focused on COVID-19 vaccine development is now being closely scrutinized – at least by the media and scientists.
The biotech is getting a lot of press recently, and it’s not all good. Oddly, market regulators have yet to weigh in on the situation, if there is indeed one. Surveillance vendors and operators are also watching closely, curiously pondering what processes and technology have been in use – or will be – to get to the truth to determine if any market abuse transpired.
Did they or did they not?
On May 18, 2020, the day that Moderna announced preliminary results for a Phase 1 COVID-19 vaccine (which virologists challenged), the company initiated a public sell-off of millions of shares hours later, raising $1.3 billion within 24 hours which also netted some of their executive leaders with over $80 million in profits. Moderna cited a standing Rule 10b5-1 plan which had queued up the automated sale of stocks on a certain date. Days later, their CFO announced his departure. The media has been quick to point fingers. However, they have not been the subject of any formal complaints by regulators, investigations, or anything other than tongue-lashing in the media by scientists and investors. Not unsurprisingly, they haven’t blinked: healthcare unicorns have a history of a lack of transparency.
Data is key to early detection, minimizing asset losses and reputational risk
Was the timing simply coincidental or was there something more nefarious going on in the examples of Moderna and Senator Burr? Biotechs, other private industry companies and even US Senators aren’t subjected to monitoring of eComms the way that brokerage firms are. So, it’s unclear what, if anything at all that can be substantiated as market abuse transpired at Moderna or in the US Senate or within any other companies outside the brokerage community. Given how COVID-19 pushed everyone outside of controlled environments into their kitchens and bedrooms on residential internet lines, anything is possible and there may be numerous examples – unfounded as well as substantiated – to hit the news in the months ahead.
No individual, organization, or industry is beyond the reach of the regulators or the laws that govern them. There are no exceptions, pandemic or otherwise. And, given the sophisticated surveillance technology available today, there is also no reason why both the intention to commit and the execution of market abuses cannot be detected. Organizations will be increasingly challenged, and obligated, to keep up with market trade activity, including all deals negotiated and brokered on eComms platforms.