Legal Week: Herbies celebrates as FSA clears ex-Shell boss Watts: “The move saw the FSA’s regulatory decision committee (RDC) reject the call of the City watchdog’s own enforcement division to subject Watts to further investigation.”: “Watts continues to be investigated by the Securities and Exchange Commission in the US, where he has instructed Mayer Brown Rowe & Maw.”: Thursday 17 November 2005
Herbies bolsters contentious financial services profile as lawyers size up FSA’s reformed powers
Herbert Smith’s contentious financial services practice last week received a substantial boost after helping to end the regulatory probe against former Shell chairman Sir Philip Watts.
The closely-watched decision saw the Financial Services Authority (FSA), on 9 November, clear Watts of personal responsibility for Shell’s reserves scandal after a 14-month inquiry.
The move saw the FSA’s regulatory decision committee (RDC) reject the call of the City watchdog’s own enforcement division to subject Watts to further investigation.
The decision followed consideration of further evidence and a hearing at which Herbert Smith partner Martyn Hopper and in-house counsel Murray Rosen QC made representations on Watts’ behalf.
Shell, which was represented by Richards Butler, came to a ‘no admission, no denial’ settlement with the FSA in August 2004, under which it paid a fine of £14m after admitting that it had overstated its oil reserves by a quarter.
The decision comes amid growing interest in the FSA’s enforcement procedures among City litigators, with lawyers adding to recent criticism of the watchdog’s tactics.
One partner specialising in FSA-related work told Legal Week: "This raises questions of proportionality. The FSA has just pursued a claim which resulted in criminal proceedings and prison sentences, where not much money was involved. This case involved significant loss to shareholders, pension funds and the public at large, and it is not clear why it was dropped."
The case was one of the first actions in which the RDC was represented by its internal legal team.
The creation of an in-house team, which is expected to have an annual budget of £2m, was one of the key reforms put forward by the FSA in July as part of a bid to improve oversight and transparency of its enforcement.
The shake-up followed the Financial Services & Markets Tribunal’s criticism of the FSA for its investigation of Legal & General for alleged mis-selling.
Hopper told Legal Week: "It is unfair for people who have not seen the evidence to call into question the FSA’s decision. This case should be held up as an example of the new RDC process in action."
Ashurst partner Edward Sparrow, who represented Watts’ fellow Shell executive Walter Van de Vijver, against whom the FSA also recently discontinued proceedings, said the case showed the regulator lacked the evidence to proceed.
"The FSA has a stated policy of holding senior executives responsible for corporate wrong-doing. You can assume from the outcome that the facts of this case did not justify holding the senior executives responsible," Sparrow said.
Watts continues to be investigated by the Securities and Exchange Commission in the US, where he has instructed Mayer Brown Rowe & Maw.
Evidence that the FSA is taking a tougher enforcement stance under current chief executive John Tiner is regarded to have led to a ‘revolving door’ situation in which the regulator has hired senior lawyers, while law firms are recruiting senior staff from the watchdog.
This year has already seen the FSA recruit White & Case partner Margaret Cole as head of enforcement, while Herbert Smith last month recruited senior FSA enforcement official David Mayhew as a partner.
Author: Caroline Grimshaw
Source: Legal Week
Start Date: 17/11/2005
End Date: 24/11/2005
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