7 Inducing Another Person to Deal

Section 102(2) of the FSMR

(1) Section 102(2) of the FSMR provides that a person ("P"):

"...commits an offence if P makes the statement or conceals the facts with the intention of inducing, or is reckless as to whether making it or concealing them may induce, another person (whether or not the person to whom the statement is made)—
(a) to enter into or Offer to enter into, or to refrain from entering or Offering to enter into, a Relevant Agreement, or
(b) to exercise, or refrain from exercising, any rights conferred by a Designated Investment."
(2) Section 102(2) sets out a number of tests relating to knowledge of the person concerned. It requires that the person making or publishing a statement referred to in sections 102(1)(a) and (b) either knows or is reckless as to whether that statement is false or misleading in a material respect. In addition, the relevant person may contravene section 102(2) above where they dishonestly conceal any material facts either in connection with a statement made by that person or otherwise (see section 102(1)(c)).

Examples of inducing another person to deal
(3) The following are specific examples of conduct that, in the Regulator's view, may contravene section 102(2):
(a) a person involved in a boiler room operation cold calls investors and as part of his high pressure sales techniques makes exaggerated claims about the prospects of Shares in a Company. The Shares are in fact of little value, are relatively illiquid and are being sold at an inflated price;
(b) a person, A, circulates marketing information about a Financial Instrument to a small group of potential investors; the marketing information includes exaggerated claims about the potential future performance of the investment when A knows or ought to know that there is no reasonable basis for making the claims;
(c) a person, B, Offers to sell Shares he owns in a Company to a number of other private investors. B discloses a range of positive information about the Company's prospects but fails to disclose other information about financial difficulties the Company has recently experienced; and
(d) C, a financial adviser who is managing Financial Instruments for a Client, records false or misleading information about the value of investments in the Client's portfolio. His purpose is to ensure that portfolio account statements sent to the Client show the value of the portfolio to be higher than its actual value, in order to induce the Client to provide funds to purchase further Financial Instruments.
The Regulator notes that some of the above examples may also contravene other sections such as section 102 (misleading statements).