UT (Tax & Chancery) UT-2022-000134 UT-2022-000135 UT-2022-000137 - [2025] UKUT 00214 (TCC)

Mr Sheth’s evidence was that his large orders were placed in pursuit of the Information Discovery Strategy which he had been shown by Mr Urra and that the Multiple Large Orders were a mistake (or poor practice).

In closing, when addressing issues relevant to collaboration between the Traders, Mr Shivji described there being, in the Authority’s submission, a “domino effect” amongst the Traders, which included that if we disbelieved Mr Urra then this would be a problem for Mr Sheth. Mr Bailin submitted that for Mr Sheth the question is not about the plausibility of the Information Discovery Strategy, but about Mr Urra having had a profitable trade and having shared this with Mr Sheth, giving him permission to try the strategy. Mr Sheth, he submitted, had no reason to believe this was anything but legitimate given that price discovery is a common market strategy and others at MHI had accepted that the Information Discovery Strategy was plausible. Mr Sheth’s junior status was, Mr Bailin submitted, relevant to his state of mind.

We have already referred (in the context of Mr Urra’s reference) to the Authority not having advanced a positive case as to how the Traders came up with their explanations for the Trading Strategies; and that the Authority’s position is that the Information Discovery Strategy is itself a fabrication, as is Mr Sheth’s account of his interactions with Mr Urra (both being shown the strategy and then subsequently expressing his frustration with it).

The Tribunal accepts the Authority’s submission that Mr Sheth’s reference cannot be considered in isolation, and that the conclusions we have reached as to the Information Discovery Strategy not being plausible are also relevant to Mr Sheth. However, the allegations made by the Authority require us to focus on the intentions of each Trader in placing the Large Orders, and the assessment of their honesty requires us to ascertain the actual state of their (subjective) knowledge. This means that, whilst our conclusions as to the (lack of) plausibility of the strategy have the potential to be unhelpful to Mr Sheth, we do not accept that the conclusions reached in relation to Mr Urra are necessarily fatal to Mr Sheth.

We have found that:

This is not a finding that Mr Urra had told Mr Sheth of the Information Discovery Strategy at that time, or that Mr Sheth had been given permission to pursue it. The only evidence we have as to the placing of this order by Mr Urra is the witness evidence of Mr Urra and Mr Sheth (where Mr Sheth’s witness statement included a copy of the trading activity for this order), and it is only Mr Sheth who said he had any specific recollection of these discussions (with Mr Urra accepting that such a conversation as recalled by Mr Sheth may have been more significant to Mr Sheth than it had been to Mr Urra).

On the basis of the timing of Mr Urra’s and Mr Sheth’s involvement in the trading activity in the Instances, Mr Urra’s considerable experience and Mr Urra’s position as Desk Head and Mr Sheth’s manager, the Tribunal finds that Mr Urra was the driving force behind the activity being pursued by Mr Sheth, whether that was the pursuit of a legitimate trading strategy or an abusive scheme.

The Tribunal has concluded that the Information Discovery Strategy was not plausible and that neither of its two “benefits” were likely to be achieved. Mr Bailin submitted that others at MHI had, however, considered the strategy to be plausible, so why shouldn’t Mr Sheth. We accept in principle that this may be relevant to Mr Sheth’s knowledge and understanding in the Relevant Period, and thus his intentions when placing the Large Orders but it is important to look further at what was actually said and understood by others.

The opinions expressed by Mr Hill, Mr Heiberg and Mr Joshi about the Information Discovery Strategy included the following:

We have already concluded that these opinions were expressed in response to what seems to the Tribunal to have been a rather vague description or understanding at the relevant time of the explanation which was being put forward by the Traders. Mr Hill certainly did not know the details of Mr Sheth’s trading activity (in particular the repeated use of 500 lots, with 250 or 300 lots only being used a few times and with no explanation of why – and certainly not by reference to a consideration of the time of day, possible counterparties or size of the cash trade being done). Whilst Mr Heiberg and Mr Joshi would have been aware of more details related to the pattern of trading activity and the overlap with orders on the opposite side of the book, they did not know (from Mr Sheth’s interviews with Compliance or HR) of the identify of clients or the size of RFQs against which Mr Sheth said he was testing the theory of clients splitting the orders they were showing to MHI. Furthermore, it is not clear whether, at the time at which Mr Heiberg and Mr Joshi were interviewed by the Authority in 2017, they were aware of the number of Instances now relied upon by the Authority.

We are not persuaded that we should place weight on the opinions of Mr Hill, Mr Heiberg or Mr Joshi, and certainly not such as to support a conclusion that Mr Sheth might have had a subjective belief that the Information Discovery Strategy was plausible and legitimate.

On Mr Sheth’s case, the Information Discovery Strategy had been shown to him by Mr Urra, but even if it appeared to make sense initially, or he was prepared to assume it must as it was being shown to him by his manager, we cannot ignore the reality that Mr Sheth knew the specifics of the decisions he was making and how he was implementing this strategy, which included the size of RFQs and identification of clients, the significant extent of the overlap with his own orders on the other side of the book (as well as those of other Traders), the time period for which the Large Orders were live (including many which were live for less than three seconds) and the proximity in time of the filling of the Small Order and the cancellation of the Large Order. Mr Sheth did not have the level of experience of Mr Urra and Mr Lopez, but he was well-educated in financial risk, understood and could analyse data, had been working on the Desk since September 2014, had received training at MHI on market manipulation and market abuse, understood what spoofing was and he knew that spoofing (and placing any orders without an intention to trade) constituted market abuse.

In the context of assessing not only whether the Information Discovery Strategy had existed in the Relevant Period, but also whether Mr Sheth might have believed that he was pursuing it legitimately, the Tribunal identifies two further difficulties:

Mr Sheth had been given considerable autonomy in his trading, eg if he was hedging for another Trader’s book he would decide the size and price of the order. Mr Sheth’s trading activity showed:

We consider that, viewed in the light of Mr Sheth’s training and trading activity, Mr Sheth’s junior status does not support a conclusion that Mr Sheth did not understand the likely market impact of placing the Large Orders. The Tribunal concludes that Mr Sheth knew what he was doing when placing the Large Orders.

We need to address the Multiple Large Orders placed by Mr Sheth. The Authority’s position was that these were each placed to increase the pressure on the order book, in the same way that Mr Urra had sometimes placed concurrent Large Orders, or two Traders would place concurrent Large Orders in an Instance. We have already stated that we are not satisfied that the Multiple Large Orders can be described as a “mistake”. Mr Sheth knew the difference between amending an order and placing a new order; each Large Order was placed with the knowledge and intention that it would be live at the new price; and Mr Sheth knew whether or not he had cancelled the first order (illustrated by the fact that he did sometimes cancel a Large Order before placing another Large Order at a better price).

If the Multiple Large Orders had only appeared in a very small number of Instances, or did not involve more than two Large Orders being live concurrently, the Tribunal would have concluded that Mr Sheth was intending to show the concurrent sizes of those Large Orders (in the same way that Mr Urra did in other Instances), even though we recognise that Mr Sheth was placing these orders at different (improved) prices. However, having considered all of the Multiple Large Orders in the Specified Instances, and identified others in the Instance Pool, the Tribunal has concluded that it was inherently unlikely that Mr Sheth would have wanted to show size of, eg, 2,000 lots in F176. This volume is significantly higher than Mr Sheth had placed in other Instances; and there is no pattern that was apparent to the Tribunal of these larger volumes being used at particular times of day or when liquidity at or close to the touch was relatively high. This leads the Tribunal to conclude that Mr Sheth placed each Large Order for the same reason (whether that be pursuant to a legitimate trading strategy or an abusive scheme), but at the point at which he placed subsequent concurrent Large Orders he no longer intended to trade his earlier Large Order(s). His poor practice was thus placing the subsequent Large Order without cancelling the first, or failing simply to amend the price of his first Large Order.

The Tribunal has considered what Mr Bailin submitted was the implausibility of the Authority’s case, including:

Assessing all of the evidence, and notwithstanding these matters relied upon by Mr Bailin including Mr Sheth’s junior status, the Tribunal concludes that the Authority has established that:

The Tribunal concludes that this conduct amounted to market abuse within s118(1) FSMA 2000 and market manipulation within Article 15 of the Market Abuse Regulation.

On the basis of our conclusions as to Mr Sheth’s actual knowledge and intentions, and taking account not only of Mr Sheth’s junior status and that Mr Urra was the driving force behind this activity but also Mr Sheth’s training and the autonomy he was granted in his trading activity, the Tribunal finds that his conduct was dishonest by ordinary standards. We draw no distinction for this purpose between the Large Orders and the Multiple Large Orders; they were all placed with the intention of facilitating the execution of the Small Orders. It is this placing of the Large Orders that was dishonest for each Large Order; that his failure to cancel the earlier Large Order(s) was poor practice does not thereafter ameliorate the position.