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FINAL NOTICE

To:
The TJM Partnership Limited (Formerly known as

Neovision Global Capital Limited) (In Liquidation)

Address:

c/o Moorfields Advisory Limited

1. ACTION

1.1.
For the reasons given in this Final Notice, pursuant to section 206 of the Financial

Services and Markets Act 2000 (“the Act”), the Financial Conduct Authority (“the

Authority”) hereby imposes on The TJM Partnership Limited (In Liquidation)

(“TJM” or “the Firm”) a financial penalty of £2,038,700 of which £1,198,277 is

disgorgement.

1.2.
TJM agreed to resolve this matter and qualified for a 30% (Stage 1) discount

under the Authority’s executive settlement procedures. Were it not for this

discount, the Authority would have imposed a financial penalty of £2,399,000 on

TJM.

2. SUMMARY OF REASONS

2.1.
Fighting financial crime is an issue of international importance, and forms part of

the Authority’s operational objective of protecting and enhancing the integrity of

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the UK financial system. Authorised firms are at risk of being abused by those

seeking to conduct financial crime, such as fraudulent trading and money

laundering. It is therefore imperative that firms have in place effective systems

and controls to identify and mitigate the risk of their businesses being used for

such purposes and that they operate these systems and controls with due skill,

care and diligence in order to properly assess, monitor and manage the risk of

financial crime.

2.2.
Between 29 January 2014 and 25 November 2015 (the “Relevant Period”), TJM:

a) breached Principle 3 as it had inadequate systems and controls to

identify and mitigate the risk of being used to facilitate fraudulent

trading and money laundering in relation to business introduced by four

authorised entities known as the Solo Group; and

b) breached Principle 2 as it did not exercise due skill, care and diligence

in applying its AML policies and procedures and in failing to properly

assess, monitor and mitigate the risk of it being used to facilitate

financial crime in relation to the Solo Clients, the purported Solo Trading,

the Elysium Payment and the Ganymede Trades.

2.3.
The Solo Clients were off-shore companies including BVI and Cayman Islands

incorporated entities and individual US 401(k) Pension Plans previously unknown

to TJM. They were introduced by the Solo Group, which purported to provide

clearing and settlement services as custodian to clients within a closed network,

via a custom over the counter (“OTC”) post-trade order matching platform in 2014

and via a trading and settlement platform known as Brokermesh in 2015. The

Solo Clients were controlled by a small number of individuals, some of whom had

worked for the Solo Group, without apparent access to sufficient funds to settle

the transactions.

2.4.
TJM executed purported OTC equity cum-dividend trades on behalf of the Solo

Clients to the value of approximately £58.55 billion in Danish equities and £19.71

billion in Belgian equities, and received commission of £1,401,608 during the

Relevant Period. TJM was “alert to the potential for an imbalance of influence in

its relationship with Solo” which provided a significant percentage of TJM’s overall

business. TJM staff were keen to maintain their relationship with the Solo Group

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which was described as the “chicken that laid the golden egg” [sic]. Before the

Solo business, TJM was losing approximately £20,000 to £30,000 per month.

2.5.
The Solo Trading was characterised by a purported circular pattern of extremely

high value OTC equity trading, back-to-back securities lending arrangements and

forward transactions, involving EU equities on or around the last day of cum-

dividend. Following the purported Cum-Dividend Trading that took place on

designated days, the same trades were subsequently purportedly reversed over

several days or weeks to neutralise the apparent shareholding positions (the

“Unwind Trading”).

2.6.
The purported OTC trades executed by TJM on behalf of Solo Clients were

conducted on platforms which did not have access to liquidity from public

exchanges. Yet the purported trades were almost invariably filled within a matter

of minutes despite representing up to 24% of the shares outstanding in companies

listed on the Danish stock exchange, and up to 10% of the equivalent Belgian

stocks. The purported OTC trades also equated to an average of 47 times the total

number of all shares traded in the Danish stocks on the Danish stock exchange

and 22 times the total number of all shares traded in the Belgian stocks on

European exchanges on the relevant last Cum-Dividend Trading date.

2.7.
The Authority’s investigation and conclusions in respect of the purported trading

are based on a range of information including, in part, analysis of transaction

reporting data, material received from TJM, the Solo Group, and five other Broker

Firms that participated in the Solo Trading. The combined volume of the Cum-

Dividend Trading across the six Broker Firms was between 15 - 61% of the shares

outstanding in the Danish stocks traded, and between 7 - 30% of the shares

outstanding in the Belgian stocks traded. These volumes are considered

implausible, especially in circumstances where there is an obligation to publicise

holders of over 5% of Danish and Belgian listed stocks.

2.8.
As a broker for the Solo Trading, TJM executed both purported Cum-Dividend

Trading and the purported Unwind Trading. However, the Authority believes it

unlikely that TJM would have executed both the purported Cum-Dividend Trades

and purported Unwind Trades for the same client in the same stock in the same

size trades and therefore it is likely that TJM only saw one side of the purported

trading. Additionally, the Authority considers that purported stock loans and

forwards linked to the Solo Trading are likely to have been used to obfuscate

and/or give apparent legitimacy to the overall scheme. Although TJM understood

the Solo Trading would involve “large European equities hedged with futures or

vice versa”, the purported stock loans and forwards were not executed by TJM.

2.9.
The purpose of the purported trading was so the Solo Group could arrange for

Dividend Credit Advice Slips (“DCAS”) to be created, which purported to show

that the Solo Clients held the relevant shares on the record date for dividend. The

DCAS were in some cases then used to make withholding tax (“WHT”) reclaims

from the tax agencies in Denmark and Belgium, pursuant to Double Taxation

Treaties. In 2014 and 2015, the value of Danish and Belgian WHT reclaims made,

which are attributable to the Solo Group, were approximately £899.27 million and

£188.00 million respectively. In 2014 and 2015, of the reclaims made, the Danish

and Belgian tax authorities paid approximately £845.90 million and £42.33 million

respectively.

2.10.
The Authority refers to the Solo Trading as ‘purported’ as it has found no evidence

of ownership of the shares by the Solo Clients, nor custody of the shares or

settlement of the trades by the Solo Group. This, coupled with the high volumes

of shares purported to have been traded, is highly suggestive of sophisticated

financial crime.

2.11.
TJM did not have adequate policies and procedures in place to properly assess the

risks of the Solo Group business, and failed to appreciate the risks involved in the

Solo Trading. This resulted in TJM conducting inadequate CDD, failing to

adequately monitor transactions and failing to identify unusual transactions. This

heightened the risk that the Firm could be used for the purposes of facilitating

financial crime in relation to the Solo Trading executed by TJM between 26

February 2014 and 28 September 2015 on behalf of the Solo Clients.

2.12.
The manner in which the Solo Trading was conducted, combined with its scale

and volume is highly suggestive of financial crime. The Authority’s findings are

made in the context of this finding, and in consideration that these matters have

given rise to additional investigations by tax agencies and/or law enforcement

agencies in other jurisdictions as has been publicly reported.

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2.13.
In addition to the Solo Trading, TJM failed to notice a series of red flags in relation

to two sets of trades in German equities it executed on behalf of Solo Clients on

30 June 2014 and 23 October 2014, which had no apparent economic purpose

except to transfer funds from Ganymede, a private entity owned by Sanjay Shah

who is also the owner of the Solo Group, to his business associates.

2.14.
On 4 November 2015, TJM also agreed to a debt factoring offer from a UAE-based

entity connected to the Solo Group called Elysium Global (Dubai) Limited

(“Elysium”) to purchase outstanding debts owed to the Firm by the Solo Clients.

TJM accepted a payment of USD 117,960 from Elysium (the “Elysium Payment”)

without having heard of that entity before and despite having no written

agreement in place.

2.15.
TJM staff had in place inadequate systems and controls to identify and mitigate

the risk of being used to facilitate fraudulent trading and money laundering in

relation to business introduced by four authorised entities known as the Solo

Group. In addition, TJM staff did not exercise due skill, care and diligence in

applying AML policies and procedures, and in failing to properly assess, monitor

and mitigate the risk of financial crime in relation to the Solo Clients and the

purported Solo Trading, the Ganymede Trades and the Elysium Payment.

Breaches and failings

2.16.
The Authority considers that TJM failed to take reasonable care to organise and

control its affairs responsibly and effectively with adequate risk management

systems, as required by Principle 3, in relation to the Solo Clients, the purported

Solo Trading and the Ganymede Trades. TJM’s policies and procedures were

inadequate for identifying, assessing and mitigating the risk of financial crime as

TJM failed to:

a) Provide adequate guidance on when and how to conduct risk assessments of

new clients and what factors to consider in order to determine the appropriate

level of CDD to be applied to clients;

b) Set out adequate processes and procedures for CDD, including in relation to

obtaining and assessing adequate information when onboarding new clients;

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c) Set out adequate processes and procedures detailing when and how to conduct

EDD;

d) Design and implement any effective processes and procedures for ongoing

monitoring, including when and how transactions were to be monitored, with

what frequency and record keeping; and

e) Set out processes and escalation procedures in identifying, managing and

documenting financial crime and AML risks.

2.17.
The Authority also considers that TJM failed to act with due skill, care and diligence

as required by Principle 2 in that in assessing, monitoring and managing the risk

of financial crime associated with the Solo Clients, the purported Solo Trading,

Ganymede Trades and Elysium Payment, the Firm failed to:

a) Conduct appropriate customer due diligence, by failing to follow even its

limited CDD procedures;

b) Gather adequate information when onboarding the Solo Clients to enable it to

understand the business that the customers were going to undertake, the

likely size or frequency of the trading intended by the Solo Clients;

c) Conduct risk assessments for any of the Solo Clients;

d) Complete EDD for any of the Solo Clients despite numerous risk factors being

present which ought to have made it clear to the Firm that EDD was required

to be conducted on each Solo Client;

e) Assess each of the Solo Clients against the categorisation criteria set out in

COBS 3.5.2R and failed to record the results of such assessments, including

sufficient information to support the categorisation, contrary to COBS

3.8.2R(2)(a);

f) Conduct ongoing monitoring, including any monitoring of the Solo Trading and

Ganymede Trades;

g) Recognise numerous red flags with the Solo Trading. These included failing to

consider whether it was plausible and/or realistic that sufficient liquidity was

sourced within a closed network of entities for the volumes of trading

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conducted by the Solo Clients. Likewise, TJM failed to consider or recognise

that the profiles of the Solo Clients meant that they were highly unlikely to be

capable of the volume of the trading purportedly being carried out, and made

no attempts to at least obtain sufficient evidence of the clients’ source of funds

to satisfy itself to the contrary;

h) Recognise numerous red flags arising from the purported Ganymede Trades

and adequately consider the serious financial crime and money laundering

risks they posed to the Firm; and

i) Consider adequately associated financial crime and money laundering risks

posed by the Elysium Payment after employees questioned a number of red

flags regarding the payment, and shortly after the Authority had conducted an

unannounced visit alerting TJM relating to possible issues with the Solo Group.

2.18.
TJM’s failings merit the imposition of a significant financial penalty. The Authority

considers the failings to be particularly serious because they left the Firm exposed

to the risk that it could be used to further financial crime. In particular:

a) TJM onboarded 311 Solo Clients in four batches, some of which were based

in jurisdictions which did not have AML requirements equivalent to those in

the UK;

b) TJM’s AML policies and procedures were not proportionate to the risks in the

Solo business that it was undertaking;

c) TJM failed to properly review and conduct due diligence on the KYC materials

that were provided by the Solo Clients or ask appropriate follow up questions

to red flags in the KYC materials when onboarded clients;

d) TJM failed to conduct any ongoing monitoring of the Solo Trading despite a

number of red flags, and facilitated the Solo Clients to purportedly trade

equities totalling more than £78 billion;

e) TJM failed to both have and apply appropriate AML systems and controls in

relation to the Solo Clients creating an unacceptable risk that TJM could be

used by clients to launder the proceeds of crime;

f) TJM executed two sets of Ganymede Trades, which resulted in a net loss of

EUR 4.7 million for a client whose UBO was Sanjay Shah (who was also the

UBO of the Solo Group) to the benefit of six Solo Clients in circumstances

which were highly suggestive of financial crime;

g) TJM accepted the Elysium Payment after being alerted to the Authority’s

concerns regarding the purported Solo Trading and after employees raised

concerns regarding the payment; and

h) Finally, none of these failings were identified or escalated by TJM during the

Relevant Period.

2.19.
Accordingly, to further the Authority’s operational objective of protecting and

enhancing the integrity of the UK financial system, the Authority hereby imposes

on TJM a financial penalty of £2,399,000.

3. DEFINITIONS

3.1.
The following definitions are used in this Warning Notice:

“401(k) Pension Plan” means an employer-sponsored retirement plan in the

United States. Eligible employees may make pre-tax contributions to the plan but

are taxed on withdrawals from the account. A Roth 401(k) plan is similar in

nature; however, contributions are made post-tax although withdrawals are tax-

free. For the 2014 tax year, the annual contribution limit was USD17,500 for an

employee, plus an additional $5,500 catch-up contribution for those aged 50 and

over. For the tax year 2015, the contribution limits were USD18,000 for an

employee and the catch-up contribution was USD6,000. For a more detailed

analysis, please see Annex C;

“2007 Regulations” or “Regulation” means the Money Laundering Regulations

2007 or a specific regulation therein;

“the Act” means the Financial Services and Markets Act 2000;

“AML” means Anti-Money Laundering;

“AML certificate” means an AML introduction form which is supplied by one

authorised firm to another. The form confirms that a regulated firm has carried

out CDD obligations in relation to a client and authorises another regulated firm

to place reliance on it in accordance with Regulation 17;

“Authority” means the Financial Conduct Authority, known prior to 1 April 2013

as the Financial Services Authority;

“Broker Firms” means the other broker firms who agreed with the Solo Group to

carry out the Solo Trading;

“Brokermesh” means the bespoke electronic platform set up by the Solo Group

for the Solo Clients to submit orders to buy or sell cash equities, and for TJM and

the Broker Firms to provide or seek liquidity and execute the purported trading;

“CDD” means customer due diligence measures, the measures a firm must take

to identify each customer and verify their identity and to obtain information on

the purpose and intended nature of the business relationship, as required by

Regulation 5;

“Clearing broker” means an intermediary with responsibility to reconcile trade

orders between transacting parties. Typically, the clearing broker validates the

availability of the appropriate funds, ensures the delivery of the securities in

exchange for cash as agreed at the point the trade was executed, and records the

transfer;

“COBS” means the Authority’s Conduct of Business Sourcebook Rules;

“Cum-dividend” means when a buyer of a security is entitled to receive the next

dividend scheduled for distribution, which has been declared but not paid. A stock

trades cum-dividend up until the ex-dividend date, after which the stock trades

without its dividend rights;

“Cum-Dividend Trading” means the purported trading that the Solo Clients

conducted where the shares are cum-dividend in order to demonstrate apparent

shareholding positions that would be entitled to receive dividends, for the

purposes of submitting WHT reclaims;

“Custodian” means a financial institution that holds customers’ securities for

safekeeping. They also offer other services such as account administration,

transaction settlements, the collection of dividends and interest payments, tax

support and foreign exchange;

“DCAS” means Dividend Credit Advice Slips. These are completed and submitted

to overseas tax authorities in order to reclaim the tax paid on dividends received;

“DEPP” means the Authority’s Decision Procedure and Penalties Manual;

“Dividend Arbitrage” means the practice of placing shares in an alternative tax

jurisdiction around dividend dates with the aim of minimising withholding taxes

(“WHT”) or generating WHT reclaims. Dividend Arbitrage may include several

different activities including trading and lending equities and trading derivatives,

including futures and total return swaps, designed to hedge movements in the

price of the securities over the dividend dates;

“Double Taxation Treaty” means a treaty entered into between the country

where the income is paid and the country of residence of the recipient. Double

taxation treaties may allow for a reduction or rebate of the applicable WHT;

“EDD” means enhanced due diligence, the measures a firm must take in certain

situations, as outlined in Regulation 14;

“Elysium” means Elysium Global (Dubai) Limited;

“Elysium Payment” means the c. USD 117,960 payment received by TJM from

Elysium on 4 November 2015 in relation to debts owed by the Solo Clients to TJM;

“Executing broker” means a broker that merely buys and sells shares on behalf

of clients. The broker does not give advice to clients on when to buy or sell shares;

“European exchanges” means registered execution venues, including regulated

markets, multilateral trading facilities, organised trading facilities and alternative

trading systems encapsulated in Bloomberg’s European Composite;

“Financial Crime Guide” means the Authority’s consolidated guidance on

financial crime, which is published under the name “Financial crime: a guide for

firms”. In this Notice, the applicable versions for the Relevant Period were

published in April 2013, April 2014, January 2015 (incorporating updates which

came into effect on 1 June 2014) and April 2015. The Financial Crime Guide

contains “general guidance” as defined in section 139B FSMA. The guidance is not

binding and the Authority will not presume that a firm’s departure from the

guidance indicates that it has breached the Authority’s rules. But as stated in FCG

1.1.8 the Authority expect firms to be aware of the Financial Crime Guide where

it applies to them, and to consider applicable guidance when establishing,

implementing and maintaining their anti-financial crime systems and controls;

“Ganymede Trades” means a series of trades in German stocks executed by

TJM on 30 June 2014 and 23 October 2014 on behalf of seven Solo Clients with

connections to the Solo Group;

“Ganymede” means Ganymede Cayman Ltd incorporated in the Cayman Islands,

a private entity solely owned by Sanjay Shan who is also the owner of the Solo

Group;

“Handbook” means the collection of regulatory rules, manuals and guidance

issued by the Authority;

“JMLSG” means the Joint Money Laundering Steering Group, which is comprised

of leading UK trade associations in the financial services sector;

“JMLSG Guidance” means the ‘Prevention of money laundering/combating

terrorist finance guidance for the UK financial sector’ issued by the JMLSG, which

has been approved by a Treasury Minister in compliance with the legal

requirements in the 2007 Regulations. The JMLSG Guidance sets out good practice

for the UK financial services sector on the prevention of money laundering and

combating terrorist financing. In this Notice, applicable provisions from the

versions dated on 20 November 2013 and 19 November 2014 have been referred

to;

The Authority has regard to whether firms have followed the relevant provisions

of the JMLSG Guidance when deciding whether a breach of its rules on systems

and controls against money laundering has occurred, and in considering whether

to take action for a financial penalty or censure in respect of a breach of those

rules (SYSC 3.2.6E and DEPP 6.2.3G);

“KYC” means Know Your Customer, which refers to CDD and EDD obligations;

“KYC pack” means the bundle of client identity information received, which

usually included incorporation documents, certified copies of identity documents,

utility bills and CVs;

“Matched principal trading” means a transaction where the facilitator

interposes itself between the buyer and the seller to the transaction in such a way

that it is never exposed to market risk throughout the execution of the

transaction, with both sides executed simultaneously, and where the transaction

is concluded at a price where the facilitator makes no profit or loss, other than a

previously disclosed commission, fee or charge for the transaction;

“MLRO” means Money Laundering Reporting Officer;

“OTC” means over the counter trading which does not take place on a regulated

exchange;

“Principles” means the Authority’s Principles for Businesses as set out in the

Handbook;

“Relevant Compliance Documents” means TJM’s “Compliance Manual” and

“Anti-Money Laundering Procedures” which were applicable during the Relevant

Period;

“Relevant Period” means the period from 29 January 2014 to 25 November

2015;

“SCP” means Solo Capital Partners LLP;

“Solo Clients” means the entities introduced by the Solo Group to TJM and on

whose behalf TJM executed purported equity trades for some of the clients during

the Relevant Period;

“Solo Group” or “Solo” means the four authorised firms owned by Sanjay

Shah, a British national residing in Dubai, details of which are set out in

paragraph 4.3;

“Solo Project” means the Solo Group’s business proposal, details of which are

set out in paragraph 4.24;

“Solo Trading” means purported Cum-Dividend Trading and the purported

Unwind Trading executed for Solo Clients during the Relevant Period;

“TJM” means Neovision Global Capital Limited (formerly known as The TJM

Partnership PLC);

“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);

“UBO” means ultimate beneficial owner with “beneficial owner” being defined in

Regulation 6;

“Unwind Trading” means the purported trading that took place over several days

or weeks to reverse the purported Cum-Dividend Trading to neutralise the

apparent shareholding positions;

“Withholding Tax” or “WHT” means a levy deducted at source from income and

passed to the government by the entity paying it. Many securities pay periodic

income in the form of dividends or interest, and local tax regulations often impose

a WHT on such income; and

“Withholding Tax Reclaims” means in certain cases where WHT is levied on

payments to a foreign entity, the WHT may be reclaimed if there is a Double

Taxation Treaty between the country in which the income is paid and the country

of residence of the recipient. Double Taxation Treaties may allow for a reduction

or rebate of the applicable WHT.

4. FACTS AND MATTERS

TJM

4.1.
TJM is a UK-based interdealer brokerage firm. During the Relevant Period, TJM

primarily facilitated and advised on trades between counterparties in equities and

equity derivative products, typically on behalf of private clients, some of whom

were high net worth individuals. Before it onboarded 311 Solo Clients in the

Relevant Period, TJM had approximately 90 on-boarded clients.

4.2.
Throughout 2014, TJM had permissions under Part 4A of the Act including dealing

in investments as agents and in January 2015, the Firm was granted permission

to deal in investments as principal. It was authorised to advise and manage

investments on behalf of eligible counterparties, professional clients and retail

clients.

The Solo Group

4.3.
The four authorised firms referred to by the Authority as the Solo Group were

owned by Sanjay Shah, a British national currently based in Dubai:

a)
Solo Capital Partners LLP (“SCP”) was first authorised in March 2012 and

was a broker.

b)
West Point Derivatives Ltd was first authorised in July 2005 and was a broker

in the derivatives market.

c)
Old Park Lane Capital Ltd was first authorised in April 2008 and was an

agency stockbroker and corporate broker.

d)
Telesto Markets LLP was first authorised on 27 August 2014 and was a

wholesale custody bank and fund administrator.

4.4.
During the Relevant Period, SCP and others in the Solo Group at various stages,

held regulatory permissions to provide custody and clearing services. The Solo

Group has not been permitted to carry out any activities regulated by the

Authority since December 2015 and SCP formally entered Special Administration

insolvency proceedings in September 2016. The other three entities are also in

administrative proceedings.

Statutory and Regulatory Provisions

4.5.
The statutory and regulatory provisions relevant to this Warning Notice are set

out in Annex B.

4.6.
Principle 3 requires firms take reasonable care to organise and control their affairs

responsibly and effectively, with adequate risk management systems. The 2007

Regulations and rules in the Authority’s Handbook further require firms to create

and implement policies and procedures to prevent and detect money laundering,

and to counter the risk of being used to facilitate financial crime. These include

systems and controls to identify, assess and monitor money laundering risk, as

well as conducting CDD and ongoing monitoring of business relationships and

transactions.

4.7.
Principle 2 requires firms to conduct their businesses with due skill, care and

diligence. A firm merely having systems and controls as required by Principle 3 is

not sufficient to avoid the ever-present financial crime risk. A firm must also

operate those systems and controls with due skill, care and diligence as required

by Principle 2 to protect itself, and properly assess, monitor and manage the risk

of financial crime.

4.8.
Money laundering is not a victimless crime. It is used to fund terrorists, drug

dealers and people traffickers as well as numerous other crimes. If firms fail to

apply money laundering systems and controls thoughtfully and diligently, they

risk facilitating these crimes.

4.9.
As a result, money laundering risk should be taken into account by firms as part

of their day-to-day operations, including those in relation to the development of

new products, the taking on of new clients and changes in its business profile. In

doing so, firms should take account of their customer, product and activity profiles

and the complexity and volume of their transactions.

4.10.
The JMLSG has published detailed guidance with the aim of promoting good

practice and giving practical assistance in interpreting the 2007 Regulations and

evolving practice within the financial services industry. When considering whether

a breach of its rules on systems and controls against money laundering has

occurred, the Authority will have regard to whether a firm has followed the

relevant provisions in the JMLSG Guidance.

4.11.
Substantial guidance for firms has also been published by the Authority regarding

the importance of AML controls, including in the form of its Financial Crime Guide,

which cites examples of good and bad practice, publications of AML thematic

reviews and regulatory notices.

Background to Dividend Arbitrage and the Purported Solo Trading

Dividend Arbitrage Trading

4.12.
The aim of dividend arbitrage is to place shares in certain tax jurisdictions around

dividend dates, with the aim of minimising withholding taxes or to generate WHT

reclaims. WHT is a levy deducted at source from dividend payments made to

shareholders.

4.13.
If the beneficial owner is based outside of the country of issue of the shares, he

may be entitled to reclaim that tax if the country of issue has a relevant treaty (a

“Double Taxation Treaty”) with the country of residence of the beneficial owner.

Accordingly, Dividend Arbitrage aims at transferring the beneficial ownership of

shares temporarily overseas, in sync with the dates upon which dividends become

payable, in order that the criteria for making a WHT reclaim are fulfilled.

4.14.
As the strategy is one of temporary transfer only, it is often executed using ‘stock

lending’ transactions. While such transactions are structured economically as

loans, the entitlement to a tax rebate depends on actual transfer of title. The legal

structure of the ‘loan’ is therefore a sale of the shares, on condition that the

borrower is obliged to supply equivalent shares to the lender at a specified future

date.

4.15.
Dividend Arbitrage may give rise to significant market risk for either party as the

shares may rise or fall in value during the life cycle of the loan. In order to mitigate

this, the strategy will often include a series of derivative transactions, which hedge

this market exposure.

4.16.
A key role of the share custodian in connection with Dividend Arbitrage strategies

is to issue a voucher to the beneficial owner which certifies such ownership on the

date on which the entitlement to a dividend arose. The voucher will also specify

the amount of the dividend and the sum withheld at source. This is sometimes

known as ‘Dividend Credit Advice Slip’ or ‘Credit Advice Note’. The purpose of the

voucher is for the beneficial owner to produce it (assuming the existence of a

relevant Double Taxation Treaty) to the relevant tax authority to reclaim the

withholding tax. The voucher generally certifies that (1) the shareholder was the

beneficial owner of the share at the relevant time; (2) the shareholder had

received the dividend; (3) the amount of the dividend; and (4) the amount of tax

withheld from the dividend.

4.17.
Given the nature of Dividend Arbitrage trading, the costs of executing the strategy

will usually be commercially justifiable only if large quantities of shares are traded.

4.18.
The Authority’s investigation and understanding of the purported trading in this

case is based, in part, on analysis of transaction reporting data and material

received from TJM, the Solo Group, and five other Broker Firms that participated

in the Solo Trading. The Solo Trading was characterised by a circular pattern of

purported extremely large-scale OTC equity trading, back-to-back securities

lending arrangements and forward transactions.

4.19.
The Solo Trading can be broken into two phases:

a)
purported trading conducted when shares are cum-dividend in order to

demonstrate apparent shareholding positions that would be entitled to

receive dividends, for the purposes of submitting WHT reclaims (“Cum-

Dividend Trading”); and

b)
the purported trading conducted when shares are ex-dividend, in relation to

the scheduled dividend distribution event which followed the Cum-Dividend

Trading, in order to reverse the apparent shareholding positions taken by

the Solo Group clients during Cum-Dividend Trading (“Unwind Trading”).

4.20.
The combined volume of the purported Cum-Dividend Trading across the six

Broker Firms were between 15% and 61% of the shares outstanding in the Danish

stocks traded, and between 7% and 30% of the shares outstanding in the Belgian

stocks traded.

4.21.
As a broker for the equity trades, TJM executed the purported Cum-Dividend

Trading and the purported Unwind Trading. However, the FCA believes it unlikely

that TJM would have executed both the purported cum-dividend trades and

purported unwind trades for the same client in the same stock in the same size

trades and therefore it is likely TJM only saw one side of the purported trading.

Additionally, the FCA considers that purported stock loans and forwards linked to

the Solo Trading are likely to have been used to obfuscate and/or give apparent

legitimacy to the overall scheme. Although TJM understood the Solo Trading would

involve “large European equities hedged with futures or vice versa”, the purported

stock loans and forwards were not executed by TJM.

4.22.
The purpose of the purported trading was to enable the Solo Group to arrange for

Dividend Credit Advice Slips (“DCAS”) to be created, which purported to show

that the Solo Clients held the relevant shares on the record date for dividend. The

DCAS were in some cases then used to make WHT reclaims from the tax agencies

in Denmark and Belgium pursuant to Double Taxation Treaties. In 2014 and 2015,

the value of Danish and Belgian WHT reclaims made, which are attributable to the

Solo Group was approximately £899.27 million and £188.00 million respectively.

In 2014 and 2015, of the reclaims made, the Danish and Belgian tax authorities

paid approximately £845.90 million and £42.33 million respectively.

4.23.
The Authority refers to the trading as ‘purported’ as it has found no evidence of

ownership of the shares by the Solo Clients, or custody of the shares and

settlement of the trades by the Solo Group.

TJM’s Introduction to the Solo Group business

4.24.
In December 2013, the Solo Group approached TJM with a business proposal (the

“Solo Project”), whereby TJM would be executing OTC cash equities, futures and

options trades for clients introduced by the Solo Group, who would provide

custody and clearing services for such trades executed by TJM. By the end of

January 2014, TJM and Solo Group representatives met to discuss the Solo Project

on at least 4 occasions (the “Initial Discussions”). Prior to this introduction, TJM

did not have any business relationship with the Solo Group. TJM did not document

or minute any of the Initial Discussions, “many” of which took place ‘informally

outside the office’.

4.25.
Before the Solo Trading commenced, TJM lacked details about the expected size,

volume or frequency of the anticipated trading. However, TJM understood that

the trading would be “good size orders” in large European equities hedged with

futures or vice versa, and that TJM would be one of several broker firms involved

in the trading. While the Solo Group did not provide full details or strategy of the

proposed trading, TJM believed that the trading would involve Dividend Arbitrage

but its role would be a “discrete part of a wider strategy employed by Solo”.

4.26.
TJM anticipated that the projected revenue from the Solo Project would be

£500,000 per annum. Based on the agreed commission rates, TJM would have

been able to calculate that, to earn that revenue, they would need to execute

trades for the Solo Clients to the value of £40 billion annually. The Solo Project

was attractive and important for TJM as it was a new area of business and

provided a new source of income to the Firm, following the departure of a key

partner and shareholder in 2013. At the beginning of the Solo Trading on 18 March

2014, TJM’s senior management emailed to the wider team stating “…we have

had another sterling performance today on the Solo account and another Firm

record broken”. At a March 2014 board meeting, it was highlighted that TJM was

losing approximately £20,000 to £25,000 per month without the Solo Project

business. Commencing February 2015, TJM was charged a EUR 5,000 monthly

fee by Solo for the Brokermesh platform, TJM staff considered it had little choice

but to adopt the platform which was “dictated” to them and accept its fees, or

cease trading on behalf of Solo Clients altogether. TJM was “alert to the potential

for an imbalance of influence in its relationship with Solo” which provided a

significant percentage of TJM’s overall business. TJM staff were keen to maintain

their relationship with the Solo Group which was described as the “chicken that

laid the golden egg” [sic].

4.27.
The Firm carried out limited due diligence on the Solo Project. The due diligence

which was conducted appears to have been a series of informal steps taken to

understand the nature of the Solo Project, without a defined point at which results

were discussed and a decision to proceed was made. Specifically, TJM stated it

took some limited steps to gain an understanding of:

a)
Individuals involved in the management of the Solo Group;

b)
The adequacy of skills within TJM to handle the Solo Project;

c)
The FCA permissions needed to conduct the trading proposed under the Solo

Project;

d)
The commercial terms of the Solo Project and the risk these posed to TJM

in relation to potential liabilities as a business; and

e)
The general legitimacy of Dividend Arbitrage strategies.

4.28.
TJM took considerable comfort from the fact that the Solo Group were FCA

regulated and that another authorised Broker Firm (which it regarded as reputable

and assumed would also have undertaken due diligence) would also be conducting

trading for the Solo Group.

4.29.
TJM did not document any minutes or notes of the decision to take on the Solo

Project.

4.30.
On 7 February 2014, TJM informed the Solo Group of its intent to sign an

agreement with them (the “2014 Services Agreement”) which the Firm signed on

24 February 2014. The Authority notes that the 2014 Services Agreement made

no reference as to who would provide clearing and settlement services for the

trades to be executed by TJM.

4.31.
On 3 February 2015, TJM entered a new agreement with each of the Solo Group

entities (the “2015 Services Agreement”). The 2015 Services Agreement set out

that the Solo Group entities: (i) would assist with the provision of clearing and

settlement services to TJM; (ii) might assist TJM with its transaction reporting

obligations; and (iii) would provide any other services which may be agreed with

TJM. In conjunction with the 2015 Services Agreement, TJM would:

a)
only be entitled to half the commission when compared to that under the

2014 Services Agreement. This meant that TJM would need to execute

trades for the Solo Clients to the value of £80 billion annually to retain the

same expected annual revenue of £500,000 in 2015. TJM requested and

received assurances that expected trading would increase significantly in

2015; and

b)
required it to act on a matched principal basis.

4.32.
On 24 February 2015, TJM agreed to the licence terms of an electronic trading

platform known as Brokermesh.

4.33.
TJM represented that it had at the time been satisfied the Firm was ready to take

on the Solo Project, its staff was confident the proposed strategy was compliant.

However, significant gaps remained within the Firm’s understanding of the Solo

Project, particularly regarding the nature of the anticipated clients and their

trading, by the time the Solo Trading had commenced on 26 February 2014.

4.34.
Minutes of a TJM “Compliance Meeting” dated 25 March 2014 suggest that TJM

had further discussions about the Solo Project, where they appear to review this

business as a result of a few “areas of uncertainty”. TJM acknowledged that the

Solo Trading was “generating a great deal of income” but “fairly complex”. Shortly

after this compliance meeting, TJM circulated an internal email containing a link

to a news article dated 18 December 2011 from The Guardian newspaper

mentioning dividend arbitrage trades and “huge tax avoidance trade “cheating”

European countries of hundreds of millions of euros a year”.

4.35.
TJM requested the written opinion from its external compliance consultant (the

“Compliance Consultant”) to address some of the areas of uncertainty on

“Dividend Washing” (i.e. Dividend Arbitrage) trading.

4.36.
The Compliance Consultant produced a memo dated 2 April 2014 that considered

a number of issues, including the legality of dividend arbitrage trading. Although

they stated in their conclusion that “Fundamentally there should be no reason

why this business can't currently continue. However, certain requirements, which

should be undertaken by the clearers, need to be confirmed”, it also alerted TJM

that “this form of trading is not allowed in certain jurisdictions and, in the future,

the legal status of this business may change in the UK”.

4.37.
The Compliance Consultant informed the Authority that their review was

extremely high-level and did not consider the adequacy of the Firm’s policies and

procedures, systems and controls on onboarding, the Solo Clients or the Solo

Trading specifically, but pointed out a range of factors TJM needed to consider.

The warning that certain jurisdictions did not allow similar type of trading,

together with the news article mentioned in paragraph 4.34 above, ought to have

prompted TJM to consider whether its policies and procedures and systems and

controls were adequate to conduct the Solo Project, and also to consider potential

financial crime risks posed to the Firm.

Onboarding of the Solo Clients

Introduction to Onboarding requirements

4.38.
The 2007 Regulations required authorised firms to use their onboarding process

to obtain and review information about a potential customer to satisfy their KYC

obligations.

4.39.
As set out in Regulation 7 of the 2007 Regulations, a firm must conduct Customer

Due Diligence (“CDD”) when it establishes a business relationship or carries out

an occasional transaction.

4.40.
As part of the CDD process, a firm must first identify the customer and verify their

identity. Second, a firm must identify the beneficial owner, if relevant, and verify

their identity. Finally, a firm must obtain information on the purpose and intended

nature of the business relationship.

4.41.
To confirm the appropriate level of CDD that a firm must apply, a firm must

perform a risk assessment, taking into account the type of customer, business

relationship, product and/or transaction. The firm must also document its risk

assessments and keep its risk assessments up to date.

4.42.
If the firm determines through its risk assessment that the customer poses a

higher risk of money laundering or terrorist financing, then it must apply

Enhanced Due Diligence (“EDD”). This may mean that the firm should obtain

additional information regarding the customer, the beneficial owner to the extent

there is one, and the purpose and intended nature of the business relationship.

Additional information gathered during EDD should then be used to inform its risk

assessment process in order to manage its money laundering/terrorist financing

risks effectively. The information firms are required to obtain about the

circumstances and business of their customers is necessary to provide a basis for

monitoring customer activity and transactions, so firms can effectively detect the

use of their products for money laundering and/or terrorist financing.

Chronology of the onboarding

4.43.
On 29 January 2014, the onboarding process commenced for the Solo Clients.

This involved the Solo Group providing KYC documents to TJM. None of the Solo

Clients had any prior business relationship with TJM,

4.44.
TJM had understood that the Solo Clients would be institutional clients but the

Firm was unaware of the Solo Clients’ intended trading strategy at the point they

onboarded them.

4.45.
During the Relevant Period, TJM onboarded a total of 311 Solo Clients, out of

which at least 91 clients requested onboarding using the exact same wording.

Throughout the process, TJM maintained a list of Solo Clients who had requested

to be onboarded, which it sent to the Solo Group periodically. Not all of the 311

Solo Clients onboarded were active and participated in the Solo Trading.

4.46.
The Solo Clients represented a dramatic increase in the number of clients TJM

typically onboarded, which was in the region of three or four a month. It also

represented a deviation from the typical way in which they interacted with clients.

TJM explained that they considered the trading was institutional in the sense that

the Solo group set the investment strategy and TJM acted on an execution only

basis, rather than providing advisory services.

4.47.
However, the Solo Clients were not institutional clients. They consisted of

approximately 255 401(k) Pension Plans, 23 entities incorporated in Labuan

(Malaysia) and the remaining entities incorporated in the British Virgin Islands,

the Cayman Islands, the UAE, Gibraltar, Seychelles and the UK. At least 45 of

these 401(k) Pension Plans/entities had been incorporated or set up in 2013 and

174 in 2014, the value of the purported trades far exceeded the investment

amounts which could reasonably have accrued given the annual contribution

limits, number of ultimate beneficial owners and short period of incorporation,

which should have alerted TJM as to the unrealistic nature of the trades and

warranted closer monitoring of their trading activities.

4.48.
A number of the Solo Clients TJM onboarded had only one UBO and many of them

were owned and controlled by the same individuals; one individual owned nine

clients, two individuals each owned seven clients, seven individuals each owned

six clients, 19 individuals each owned five clients. Three single individuals

managed a total of over 140 of these clients.

4.49.
There is no evidence that TJM reassessed the Solo Project despite being presented

with and onboarding clients which were fundamentally different to their

understanding prior to the start of the Solo Trading (i.e. that such clients would

be regulated institutional clients).

4.50.
CDD is an essential part of the onboarding process, which must be conducted

when onboarding a new client. Firms must obtain and hold sufficient information

about their clients to inform the risk assessment process and manage the money

laundering risks effectively.

4.51.
The CDD process has three parts. Under Regulation 5 of the Money Laundering

(a)
First, a firm must identify the customer and verify their identity.

(b)
Second, a firm must identify the beneficial owner, if relevant, and verify

their identity.

(c)
Finally, a firm must obtain information on the purpose and intended nature

of the business relationship.

A. Customer Identification and Verification

4.52.
Regulation 20 of the Money Laundering Regulations requires that firms establish

and maintain appropriate and risk-sensitive policies and procedures related to

customer due diligence. SYSC 6.3.1R also requires that the policies must be

comprehensive and proportionate to the nature, scale and complexity of its

activities.

4.53.
TJM stated that its CDD policy was set out in its Relevant Compliance Documents

during the Relevant Period.

4.54.
In respect of the Solo Clients, TJM stated that it maintained a specific client on-

boarding process which detailed a step-by-step process for gathering KYC and

client identification information (the “Solo Procedures”) which were created to

reflect that the Solo Group business was different from TJM’s traditional private

broking business for high net worth clients. These, however, were substantially

inadequate as they were extremely high-level in nature (initially less than half a

page was devoted to the entire onboarding process). As elaborated further below,

the Solo Procedures did not reference or address several fundamental concepts

relating to customer due diligence.

B. Purpose and Intended Nature of a Business Relationship

4.55.
As part of the CDD process, Regulation 5(c) of the 2007 Regulations requires firms

to obtain information on the purpose and intended nature of the business

relationship. Firms should use this information to assess whether a customer’s

financial behaviour over time is in line with their expectations and to provide it

with a meaningful basis for ongoing monitoring of the relationship.

4.56.
Regulation 20 of the 2007 Regulations requires that firms establish and maintain

appropriate and risk-sensitive policies and procedures related to customer due

diligence, and SYSC 6.3.1R requires that the policies must be comprehensive and

proportionate to the nature, scale and complexity of its activities.

4.57.
In addition, the JMLSG Guideline states: “if a firm cannot satisfy itself as to the

identity of the customer; verify that identity; or obtain sufficient information on

the nature and intended purpose of the business relationship, it must not enter

into a new relationship and must terminate an existing one.”

4.58.
TJM’s Compliance Manual explicitly required TJM staff to obtain “sufficient

information about the nature of the business that the client expects to undertake.

They should understand the purpose of the proposed business and the anticipated

level and nature of activity to be undertaken. They should also where appropriate

enquire as to the source of funds to be used.”

4.59.
TJM’s Compliance Manual and the Solo Procedures provided basic procedures to

obtain and verify clients’ identities. However, they:

a)
Made no reference to the broader concepts of CDD or EDD, or to the

possibility that clients may pose higher risks which required enhanced

enquiries or measures to mitigate such risks; and

b)
Did not set out any framework or guidance for staff to consider what might

constitute a sufficient understanding of the purpose and intended nature of

the business relationship with each client, or what a risk assessment should

consider (indeed the Solo Procedures contained no references at all to risk

assessments).

4.60.
TJM first received KYC documentation for the Solo Clients from the Solo Group on

29 January 2014. TJM stated that it had followed the process set out in the Solo

Procedures. In 2014, the CDD TJM undertook for the Solo Clients was limited to

carrying out identification checks. In 2015, TJM also carried out PEP and sanctions

checks for the Solo Clients and for the UBOs of each of the entities being

onboarded. On completion, TJM sent an “On-boarding Pack” to the Solo Clients

for completion and signature, which involved asking them to sign TJM’s terms of

business, complete and sign an on-boarding questionnaire (the “Onboarding

Questionnaire”), and sign a “Loss of Protection” letter.

4.61.
The Onboarding Questionnaire took the form of a two-page questionnaire which

requested details including annual income and expenditure, total assets and

liabilities, the value of the company, trading experience and objectives, and a

description of source of funds. However, neither TJM’s Compliance Manual nor the

Solo Procedures specified whether or how TJM should review the contents of KYC

documents and the Onboarding Questionnaire. TJM sent its onboarding pack

including the Loss of Protection letter to one client, Client J, on 15 July 2015 before

it had even received its KYC documentation on 23 July 2015. TJM also did not

consider how the KYC documents and the Onboarding Questionnaires affected

each of the Solo Client’s risk profiles.

4.62.
Despite the limited due diligence carried out when the Solo Project was introduced

to the Firm, TJM failed to take adequate steps to understand the nature and

limitations of the intended trading by each of the individual Solo Clients.

Employees noted that “we believed Solo was running a dividend arbitrage strategy

for high net worth clients” and that “… we’d been given no indication as to, exactly,

what size of business was coming through or which stocks they would trade or

which futures they would trade.” TJM also failed to identify the source of funds of

each of the Solo Clients (see paragraphs 4.90 and 4.164 below).

4.63.
This meant that from the point of onboarding, TJM had insufficient information on

which to adequately evaluate whether the purported trading by the Solo Clients

was in line with expectations and as a result unable to provide it with a meaningful

basis for ongoing monitoring and to be alert to transactions that were abnormal

within the relationship.

4.64.
Despite the lack of information available to TJM about the nature and scale of

intended trading, TJM onboarded 311 Solo Clients.

4.65.
As part of the onboarding and due diligence process, firms must undertake and

document risk assessments for every client. Such assessments should be based

on information contained in the clients’ KYC documents.

4.66.
Conducting a thorough risk assessment for each client assists firms in determining

the correct level of CDD to be applied, including whether EDD is warranted. If a

customer is not properly assessed, firms are unlikely to be fully apprised of the

risks posed by each client, which increases the risk of financial crime.

4.67.
Under Regulation 20 of the 2007 Regulations, firms are required to maintain

appropriate and risk-sensitive policies and procedures related to risk assessments

and management.

4.68.
The Authority has not seen any evidence that TJM carried out risk assessments

for any of the Solo Clients.

4.69.
The Solo Procedures made no reference to conducting risk assessments.

Furthermore, TJM’s Compliance Manual did not require the Firm to undertake and

document risk assessments for every client. Rather, it merely referred to a

general requirement for TJM “to have systems and controls appropriate to [a

client’s] business based nature, scale and complexity of the firm’s business and

its customer, product and activity profile” and that “once the firm has identified

and assessed the risks it faces in respect of money laundering, senior

management must ensure that appropriate controls to manage and mitigate these

risks are designed and implemented”, as part of its risk-based approach. No

further guidance was provided to TJM employees as to how to conduct this risk-

based approach.

4.70.
Geographical risk was the only risk factor set out in TJM’s Compliance Manual

which would prompt the Firm to consider additional due diligence. These measures

were limited to requiring a personal applicant residing outside the UK to provide

an additional certified form of ID or proof of address. For non-UK entities, TJM’s

Compliance Manual stated “in addition to obtaining the comparable documents

applicable to those for UK companies steps should be taken to identify key

directors/shareholders”.

4.71.
During the Relevant Period, TJM also had a ‘Compliance Monitoring Programme’

in place with the stated aim of ensuring “that the firm has identified the areas of

its business which give rise to risks of non-compliance with the relevant rules and

regulations and to set out a comprehensive monitoring schedule to mitigate these

risks.” However, the programme did not describe how to identify these risks and

perform the monitoring function nor did any such monitoring schedule exist.

4.72.
The Authority considers that had TJM conducted basic due diligence of the Solo

Client’s KYC documentation and Onboarding Questionnaires, it would have

identified a number of risk factors which indicated that the Solo Clients posed a

higher risk of financial crime which ought to have prompted the Firm to undertake

further enquiries of the Solo Clients. These risk factors included that:

a)
The Solo Clients were a significant departure from the type of clients TJM

had expected to on-board for the Solo Trading. Many of the Solo Clients had

just a single director, shareholder and/or UBO and many of these were

owned and managed by the same individuals. This was in contrast to TJM’s

expectation that it would be dealing with large, regulated institutional

clients.

b)
TJM had no former business relationship with the Solo Clients and TJM

lacked sufficient information regarding the nature and purpose of the

intended trading by the Solo Clients. Therefore, TJM did not have a profile

against which to base an assessment of their purported trading for the

purposes of ongoing monitoring.

c)
The Solo Clients were introduced by the Solo Group, where there was a

possibility of a conflict of interest as some UBOs were former employees of

SCP. In the case of Ganymede, it was owned and controlled by Sanjay Shah,

who was also the UBO of the Solo Group. Because of the Solo Group’s

relationship with their former employees and Sanjay Shah, they were not in

a position to provide an unbiased view in onboarding and assessing the Solo

Clients for due diligence purposes.

d)
Around 80% of the Solo Clients were US 401(k) Pension Plans, the

beneficiaries of which were trusts. The JMSLG Guidance states “some trusts

established in jurisdictions with favourable tax regimes have in the past

been associated with tax evasion and money laundering, especially if set up

in a non-EU/EEA country or higher risk jurisdiction” In fact, TJM stated “It

will involve more compliance work to take on US clients”. Additionally, TJM

did not enquire how 401(k) Pension Plans operated, the rules for

establishment, or the amounts which could be invested in them.

e)
None of the Solo Clients were physically present for identification purposes

as the onboarding process was conducted via email. This is identified in the

2007 Regulations as being indicative of higher risk and therefore firms are

required to take measures to compensate for the higher risk associated with

such clients.

f)
The Solo Clients purportedly sought to conduct OTC equity trading. In such

cases, the JMSLG Guidance requires firms to take a more considered risk-

based approach and assessment.

4.73.
As a result of failing to conduct risk assessments, TJM also could not adequately

identify risk factors for the Solo Clients. TJM therefore lacked a meaningful basis

to determine whether or not the Solo Clients required EDD or whether it was

appropriate to onboard them.

4.74.
Firms must conduct EDD on customers which present a higher risk of money

laundering, so they are able to assess whether or not the higher risk is likely to

materialise.

4.75.
Regulation 14(1)(b) states that firms “must apply on a risk-sensitive basis

enhanced customer due diligence and enhanced ongoing monitoring in any

situation which by its nature can present a higher risk of money laundering or

terrorist financing.” The 2007 Regulations further require firms to implement EDD

measures for any client that was not physically present for identification purposes.

4.76.
Regulation 20 of the 2007 Regulations requires firms to maintain appropriate and

risk-sensitive policies and procedures related to customer due diligence

measures, which includes enhanced due diligence. SYSC 6.3.1R further requires

that the policies must be comprehensive and proportionate to the nature, scale

and complexity of its activities.

4.77.
The JMLSG has also provided guidance on the types of additional information that

may form part of EDD, including obtaining an understanding as to the clients’

source of wealth and funds.

4.78.
Besides the additional measures TJM was required to consider for clients by virtue

of their location, TJM’s Compliance Manual stated that for non-face to face

identification verification “more stringent identification requirements need to be

imposed” which would depend on “the specific circumstances of each case but

30

may extend to seeking notarised copies of the documents”. No further guidance

was provided as to when or how EDD ought to be conducted.

4.79.
Other than those brief references, TJM’s Compliance Manual and Compliance

Monitoring Programme did not provide any further information nor establish

procedures in relation to EDD. As a result, they were fundamentally inadequate

in enabling the Firm to carry out EDD appropriate to high-risk clients.

4.80.
In view of the risk factors set out at paragraph 4.72 above, the Solo Clients

presented a higher risk of money laundering. TJM therefore ought to have

conducted EDD in respect of each Solo Client, however failed to do so.

4.81.
In view of the connections between some of the Solo Clients and the Solo Group,

this should have included independent enquiries as to the Solo Clients’ sources of

funds to ensure that they were not still financially connected to the Solo Group as

employees, and had sufficient funds to conduct the anticipated trading.

4.82.
The fact that TJM would act as a matched principal broker in relation to the Solo

Trading in 2015 appears to have prompted TJM to commission a new review of

the Solo business. This review was conducted by the Firm’s Compliance

Consultant on 4 March 2015. It focused on client onboarding procedures relating

to the Solo Clients. Whilst only being intended to be a high-level review (as set

out in paragraph 4.37 above). The review identified that:

a) The Solo Clients had not been formally risk classified and needed to be. All

Solo Clients fell into the high-risk category and the appropriate level of due

diligence had to be set. The Compliance Consultant further noted that for a

sample of Solo Clients reviewed, EDD should have been conducted; and

b) No sanctions or PEP checks / screening had been conducted for the

individuals, owners, directors or partners of the Solo Clients.

4.83.
Whilst TJM claimed that it started carrying out PEPs and sanctions checks in

relation to the Solo Clients in 2015, the Firm failed to implement robust measures

and adapt its approach as a result of these concerns, including undertaking a risk

assessment of each Solo Client and keeping proper records of the work conducted

to address these issues.

4.84.
Recognising the higher financial crime risks presented by the Solo Clients, TJM

ought not only to have requested basic information in the Onboarding

Questionnaires, but ought also to have substantively reviewed and assessed these

to comply with EDD requirements.

4.85.
Additionally, from a substantive review of the KYC documents and completed

Onboarding Questionnaires received, TJM ought to have considered what further

EDD measures might have been appropriate for the ongoing monitoring of each

Solo Client, keeping under review their risk profile and trading activities.

Client A

4.86.
An example of a Solo Client that TJM onboarded was a 401(k) Pension Plan

(“Client A”) where KYC documents showed that the sole beneficiary was an 18-

year-old college student. This college student was also the sole beneficiary of four

other 401(k) Pension Plans.

4.87.
The responses to the Onboarding Questionnaires that the Firm received from

Client A’s representative for each of these five 401(k) Pension Plans were nearly

identical. The exact same answers were given for the following questions: “Total

Annual Income: GBP 750,000”, “Net Assets: GBP 4,600,000”, source of funds:

derived from “20+ years of working, investing and various entrepreneurial

endeavours” and traded an aggregate 145 times in various financial products

during the last 12 months.

4.88.
The Authority’s investigation has not identified any evidence that TJM had made

any enquiries on the Onboarding Questionnaire of Client A and/or the five related

401(k) Pension Plans. As with all other Solo Clients, no enhanced due diligence

was conducted on Client A despite it being required under the 2007 Regulations

and a number of the answers provided appearing to be improbable given Client A

was an 18-year old student.

Representative of Client A

4.89.
Client A’s representative also appeared to be the client representative for

approximately 50 other Solo Clients which requested to be onboarded with TJM.

The representative provided TJM with near identical responses to Onboarding

Questionnaires for 25 of the Solo Clients TJM onboarded, including identical

answers to each client’s annual income, net assets, source of funds and historic

trading activity. For the remaining 25 Solo Clients where this individual was the

client representative, TJM did not receive Onboarding Questionnaires, but rather

received AML Certificates certifying that the Solo Group had carried out all

applicable CDD under the 2007 Regulations and the JMLSG Guidance. For one

individual represented by Client A’s representative, TJM did not receive an

Onboarding Questionnaire or AML Certificate but nonetheless onboarded that Solo

Client anyway.

4.90.
TJM did not make any enquiries as to whether the UBO of the respective entities

in fact had net assets of £4.6 million cumulatively across each of the Solo Clients

for which he sent Onboarding Questionnaires, or alternatively enquire whether

and/or how the UBO of the respective entities had access to such personal wealth

in order to fund all of these Solo Clients simultaneously. Nor did TJM enquire or

raise concerns as to how each of these 25 Solo Clients had exactly the same

income, assets and liabilities.

Client B

4.91.
The Authority has identified only one instance of a Solo Client (“Client B”) being

reviewed by TJM as a result of concerns identified in respect of its financial

resources during the Relevant Period. This instance occurred after the

commencement of the Solo Trading on 26 February 2014.

4.92.
On 26 March 2014, TJM carried out a review of Client B following receipt of KYC

documentation from the Solo Group. TJM escalated Client B’s onboarding

internally and identified the following:

a)
Client B “was only incorporated two weeks ago and has share capital of just

50k. They have disclosed assets of 200k so may have injected in more funds

since.”

b)
“Although the owners have industry experience and might be able to be

classified as professional in their own right, I am not sure how we can

classify a 50k firm as professional.”

c)
“Given that these firms will be buying and selling millions of pounds / Euros

etc of shares at a time, I would have thought that the firm would need to

have substantial [sic] more capital.”

d)
“how would this work in practice? How much does a firm need to pay the

clearer / broker? Can a Firm with only 200k of assets purchase participate

in these multi million pound give ups?”

4.93.
On 27 March 2014, a TJM staff member was asked to “follow up (light touch) with

Solo”. It is unclear whether this follow-up occurred, but TJM appears to conclude

that:

a)
“the share capital of 50k is probably not relevant” and “each of these large

trades in cash equities have an equal and opposing futures position which

offsets margin and reduces exposure. The gain is in the arbitrage.” A further

comment is made that “The share cap issue is a little misleading as it only

demonstrates the paid up element of the Company and not the full financial

position”.

b)
“the 200k note on the fact find is confusing especially as we are lead to

understand that the minimum investment accepted by the custodian is £5M.

As such I am happy they qualify on financial resource on the basis of the

£5M minimum”.

4.94.
The Onboarding Questionnaire from one of three shareholders of Client B and its

KYC documents contained responses that Client B had annual income of £1

million, estimated annual expenditure of £600,000 but no assets or liabilities.

Client B represented to have assets of £200,000, stating that its source of funds

is derived from “trading/personal” and that its trading objective was “Investing

for income”. This suggested that Client B’s three shareholders would be trading

using personal funds and savings. It also stated that Client B or its shareholders

had traded in 100 futures, 100 options and 100 cash equities during the last 12

months despite being incorporated less than a month before, on 3 March 2014.

4.95.
TJM does not appear to have requested or received any further documentation or

information from Client B, nor to have verified the representations made by the

Solo Group regarding the requirement to have £5 million in funds to be

onboarded, or how such an entity could have obtained such funds despite its

recent incorporation, limited assets and profile, and only three contributing

shareholders.

4.96.
Nonetheless, Client B was on-boarded shortly thereafter on or around 31 March

2014. TJM purportedly executed Cum-Dividend Trading on behalf of Client B on

three occasions during the Relevant Period to the aggregate value of

approximately £2.6 billion in Danish and Belgian equities (with its largest single

trade being approximately £1.86 billion). However, notwithstanding Client B’s

limited financial resources this extraordinary volume of trading was not identified

or escalated due to the deficiencies in TJM’s onboarding and on-going monitoring

procedures.

4.97.
On 17 June 2014, Ganymede sent an onboarding request to TJM.

4.98.
The KYC documentation and the completed Onboarding Questionnaire showed

that Ganymede was incorporated in the Cayman Islands on 16 June 2010. Sanjay

Shah was its single UBO, it had an annual income of £5 million, total assets of £1

million, a value of £1 million and its source of funds was derived “from savings

and earnings”.

4.99.
The fact that the UBO of Ganymede was the same as the UBO of the Solo Group

should to have been obvious to TJM had the KYC material been adequately

reviewed and ought to have been flagged as presenting an increased risk of

financial crime. The EDD process should therefore have included independent

enquiries on its source of funds, connections with some of the Solo Clients and

with the Solo Group, and checks should have been made that it had sufficient

funds to conduct the anticipated trading.

4.100. This would have been particularly important given the outcome of the purported

trades that TJM executed on behalf of Ganymede in German stock A on 30 June

2014 and 23 October 2014, which resulted in a net loss EUR 4.7 million to. This

is further detailed in the ‘Ganymede Trades’ section (see paragraphs 4.169 to

4.200 below).

4.101. Notwithstanding these clear risk factors, TJM failed to conduct any EDD on

Ganymede.

Reliance on Solo for due diligence

4.102. The 2007 Regulations allow firms such as TJM to rely on another authorised firm’s

due diligence provided they consent to being relied on. However, the 2007

Regulations emphasise that liability remains on firms such as TJM for any failure

to conduct appropriate due diligence measures.

4.103. The JMLSG Guidance states that firms should take a risk-based approach when

deciding whether to accept confirmation from a third party that appropriate CDD

measures have been carried out on a customer and this “cannot be based on a

single factor”. They also state that if reliance is placed on a third party, the firm

still needs to know the identity of the beneficial owner whose identity is being

verified; the level of CDD carried out; and have confirmation of the third party’s

understanding of his obligation to make available on request copies of the

verification data, documents or other information.

4.104. JMLSG Guidance further notes that arrangements for the outsourcing of clearing

and settlement processes also exist in securities markets. In this context,

emphasis is placed on the execution-only broker’s obligation to conduct CDD and

EDD as the first point of contact to clients and their transactions. Similarly JMLSG

Guidance emphasises that OTC business in wholesale markets exhibit very

different AML risks as it may be less regulated than exchange-traded products

and therefore require more detailed risk-based assessment.

4.105. TJM informed the Authority that their role was an execution-only broker and that

it relied upon the fact that the Solo Clients were referred to TJM from the Solo

Group, which would be required to conduct its own CDD and EDD over each Client.

4.106. However, as noted at paragraph 4.72(c) above, TJM failed to consider the

apparent conflict of interest in that significant numbers of the Solo Clients had

connections with the Solo Group which was relied upon to conduct CDD/EDD.

4.107. TJM’s Compliance Manual referred to circumstances whereby clients may be

exempted from its identification requirements, whilst applicable versions of the

Solo Procedures stated: “Note that we rely on Solo for the US KYC (Solo sign a

form confirming they’ve done all the checks)” and “On occasion Solo may send a

verification of ID Form this confirms that they have done all the KYC checks and

their Compliance Department has signed it off”.

36

4.108. However, neither TJM’s Compliance Manual nor the Solo Procedures set out

procedures and/or guidance on its risk-based approach for conducting CDD (other

than verifying clients’ identities) on new clients introduced by authorised firms.

Nor did they set out when reliance could be placed upon KYC documents provided

by the authorised firms for the new clients or detail the circumstances when it

was appropriate to do so.

4.109. TJM appeared to have relied on the CDD carried out by the Solo Group for a

number of the Solo Clients the Firm onboarded.

4.110. On one occasion, the Solo Group provided TJM with a “Verification of ID Form”

(for Client B) as described in TJM’s Solo Procedures, attesting that they had

carried out all appropriate AML due diligence under the 2007 Regulations in

relation to the identification of the customer, however gave no detail on the due

diligence carried out regarding the purpose and intended nature of the business

relationship with that Solo Client.

4.111. Separately on 6 August 2015, the Solo Group provided TJM with ’AML Certificates’

for 73 Solo Clients TJM onboarded, certifying that they had carried out all

applicable CDD under the 2007 Regulations and the JMLSG Guidance. This

extended beyond certifying the identification of customers, as the certificates

stated there had been consideration of the source of funds for transactions and

the implementation of ongoing monitoring.

4.112. In respect of these 73 Solo Clients, the Authority has not identified any evidence

to suggest that TJM followed its (limited) Solo Procedures which had been applied

to previously onboarded Solo Clients (this included receipt of KYC packs and TJM

Onboarding Questionnaires). At least eight of the 73 clients onboarded had not

provided a complete set of onboarding documentation. The Authority also notes

that TJM executed purported Solo Trading on behalf of some of these clients as

early as 7 August 2015 prior to the completion of onboarding process.

4.113. TJM appears to have assumed that the Solo Group had carried out adequate due

diligence on the Solo Clients and taken comfort from this assumption as

mentioned in paragraph 4.105 above.

4.114. Given the connections between the Solo Group and the introduced clients outlined

in paragraph 4.72(c), TJM ought to have queried whether the Solo Group was

sufficiently independent to enable TJM to place reliance (or take comfort) from

the Solo Group’s representations as to CDD conducted on the Solo Clients. The

Authority has not located any evidence of TJM querying the risk that the Solo

Group might not have adequately conducted CDD, or of TJM assessing the

appropriateness of relying on their AML due diligence [or of TJM ever challenging

or questioning the Solo Group’s representations in relation to Solo Clients. On the

contrary, TJM appeared to have taken comfort from the links between the Solo

Group and the Solo Clients and other broker firms were also handling Solo

business.

4.115. There is also no evidence that TJM made any enquiries as to the level of due

diligence conducted by the Solo Group on the Solo Clients, or the extent of

measures the Solo Group might have implemented to mitigate any perceived AML

risks. The Authority has not located evidence of TJM conducting a risk-based

assessment of whether it could rely on the Solo Group’s due diligence, or that it

sought to satisfy itself the 2007 Regulations and JMLSG Guidance had been

complied with despite the fact that the Firm remained liable for any failure to

apply adequate measures.

4.116. TJM’s reliance on the Solo Group in relation to AML and due diligence checks was

all the more unreasonable given the limited due diligence it had initially carried

out on the Solo Project as detailed at paragraph 4.27 above.

4.117. Part of the onboarding process also includes categorising clients according to the

COBS rules, which is an additional and separate requirement to carrying out risk

assessments. Pursuant to COBS 3.3.1R, firms must notify customers of their

categorisation as a retail client, professional client or eligible counterparty.

Authorised firms must assess and categorise clients based on their level of trading

experience, risk knowledge and access to funds in order to ensure suitable

products are offered. Proper application of the rules also ensures that firms only

act for clients within the scope of their permissions. Firms are required to notify

clients as to the categorisation made by the Firm. Pursuant to COBS 3.8.2R, firms

must also keep records in relation to each client’s categorisation, including

sufficient information to support that categorisation.

38

4.118. During the Relevant Period TJM was authorised to deal as an agent for retail

clients, professional clients and eligible counterparties, the latter two of which are

types of clients that are considered to have experience, knowledge and expertise

to make their own investment decisions. There are two types of professional

clients; per se professionals and elective professionals. Each of these categories

has prescriptive criteria, as described in the COBS rules.

4.119. TJM’s Compliance Manual contained its policy regarding client categorisation. The

policy stated “Classifying clients correctly is extremely important as it defines

what duties we owe them under FCA rules and guidance. We must therefore take

reasonable steps to establish whether a client falls into one of the following

categories (Eligible Counterparty; Professional client; Retail client) before

conducting any investment business with them”.

4.120. TJM’s Compliance Manual did provide what constitutes each category of clients

and in particular with regards to elective professional clients, it stated “TJM may

classify a client who would otherwise be a retail client as an professional client” if

TJM undertakes the steps mentioned in the COBS rules referred to in paragraph

4.117 and also reviews the clients’ status as a professional client annually.

4.121. TJM’s Compliance Manual further stated: “In order to determine that a client has

sufficient experience and understanding to be classified as an Professional Client,

you must have regard to the following: (i) the client's knowledge and

understanding of the relevant investments and markets, and the risks involved

(ii) the length of time the client has been active in these markets, the frequency

of dealings and the extent to which he has relied on the advice of TJM; (iii) the

size and nature of transactions that have been undertaken for the client in these

markets; (iv) the client's financial standing, which may include an assessment of

his net worth or of the value of his portfolio.”

4.122. TJM’s Compliance Manual emphasised that “the onus is on TJM to prove that a

client has sufficient experience and understanding to be treated as an [sic]

professional client. It is difficult to prove that a client has the sufficient experience

and understanding if TJM has to rely mostly on anecdotal evidence i.e. recalling

telephone conversations etc.”

4.123. Contrary to the requirements in COBS and its own Compliance Manual, TJM did

not individually assess the Solo Clients to determine their classification. Instead,

TJM categorised that all the Solo Clients were elective professionals based on its

belief that they met the requisite criteria regarding trading experience, even

though no evidence was obtained. TJM appears to take comfort from the fact that

the Solo Clients were also existing clients of the Solo Group and assumed they

would have been trading clients of the Solo Group, even though most had only

been recently incorporated. On a call with a Solo Group representative on 18

February 2014, TJM staff noted that “the mere fact that they’ve already been

trading with you or through you for x many years, so many times a day properly

satisfies most of the criteria” and also stated that TJM was “trying to make the

account opening as simple as possible”.

4.124. The Solo Procedures required staff to send an ‘On-boarding Pack’ to each Solo

Client, containing a ‘Loss of Protection’ letter which warned the client of the

consequences of being categorised as elective professional. This step was neither

preceded by the receipt of any formal written requests from Solo Clients to be

categorised as an elective professional, nor by an assessment of whether each of

the Solo Clients in fact met the criteria to be elective professionals under the

COBS rules.

4.125. Significantly, prior to conducting any due diligence check to enable TJM to fully

assess and understand the background of new clients, it assumed Solo Clients

were elective professional clients and provided them with the ‘Loss of Protection’

letter which stated the criteria they needed to meet to be elective professionals.

At the same time, the clients were asked to complete the Onboarding

Questionnaire, which requested information relevant to the qualitative and/or

quantitative tests prescribed by the COBS rules for client categorisation. This was

despite the fact that TJM explained that “… the information on the fact find

[Onboarding Questionnaire] is to assess the client sufficiently enough to

understand, for example, the categorisation of the client …”

4.126. TJM therefore did not have sufficient information on which to base a decision

regarding the categorisation of the Solo Clients at the point it sent the ‘Loss of

Protection’ letter, as the KYC documents provided by the Solo Group provided

insufficient detail to enable TJM to assess whether each of the Solo Clients met

the criteria for elective professionals. The Authority notes on one instance, a ‘Loss

of Protection’ letter was sent to a Solo Client prior to TJM even receiving its KYC

information.

4.127. The Solo Clients did not ultimately provide any evidence (beyond self-certification

through completion of the ‘Loss of Protection’ letters and Onboarding

Questionnaires) that they met the criteria to be categorised as elective

professionals. Consequently, failure to conduct its own due diligence on the

Onboarding Questionnaires properly, TJM could not reasonably have formed a

view that any of the Solo Clients met the criteria set out in COBS to be elective

professional clients.

Ongoing monitoring

4.128. Regulation 8(1) of the 2007 Regulations requires firms to conduct ongoing

monitoring of the business relationship with their customers. Ongoing monitoring

of a business relationship includes:

a) scrutiny of transactions undertaken throughout the course of the relationship

(including, where necessary, the source of funds) to ensure that the

transactions are consistent with the firm’s knowledge of the customer, his

business and risk profile; and

b) ensuring that the documents or information obtained for the purposes of

applying customer due diligence are kept up to date.

4.129. Monitoring customer activity helps identify unusual activity. If unusual activities

cannot be rationally explained, they may involve money laundering or terrorist

financing. Monitoring customer activity and transactions that take place

throughout a relationship helps firms know their customers, assist them to assess

risk and provides greater assurance that the firm is not being used for the purpose

of financial crime.

Transaction monitoring

4.130. As part of a firm’s ongoing monitoring of a client relationship, Regulation 8 of the

2007 Regulations requires that firms must scrutinise transactions undertaken

throughout the course of the relationship (including, where necessary, the source

of funds) to ensure that the transactions are consistent with the relevant person’s

knowledge of the customer, their business and risk profile. For some clients, a

comprehensive risk profile may only become evident once they have begun

transacting through an account.

4.131. Furthermore, Regulation 14(1) states that enhanced ongoing monitoring must be

applied in situations which can present a higher risk of money laundering or

terrorist financing.

4.132. Regulation 20 requires firms to have appropriate risk-sensitive policies and

procedures relating to ongoing monitoring. These policies must include

procedures to identify and scrutinise; 1) complex or unusually large transactions;

2) unusual patterns of activities which have no apparent economic or visible lawful

purpose; and 3) any other activity which the relevant person regards as likely by

its nature to be related to money laundering or terrorist financing.

4.133. As described in paragraphs 4.119 to 4.122 above , TJM had a ‘Compliance

Monitoring Programme’ in place with the stated aim of ensuring “that the firm has

identified the areas of its business which give rise to risks of non-compliance with

the relevant rules and regulations and to set out a comprehensive monitoring

schedule to mitigate these risks.” However, no such monitoring schedule existed

in respect of identification of these risks and performing the monitoring function.

4.134. TJM’s Relevant Compliance Documents failed to set out any policies and/or

procedures regarding: (i) whether, how, or the frequency with which ongoing

monitoring should have been performed; (ii) whether staff ought to have reviewed

transactions undertaken throughout the course of the customer relationship to

ensure they were consistent with the customer’s business and risk profile; or (iii)

whether these obligations should have been enhanced for higher risk clients.

4.135. Similarly, TJM’s Solo Procedures did not make any provision for the review and/or

monitoring of the Solo Clients following on-boarding. This created a risk that client

and transaction monitoring would not be conducted consistently or at all.

4.136. TJM stated that it did carry out periodic reviews of the Solo Clients but was unable

to explain what specifically they looked at during such reviews.

4.137. In relation to the Solo Trading, TJM also stated that ‘independent periodic

monitoring’ was carried out by its ‘Trading Support Manager’ and an external

review was carried out by external compliance consultants. Further, its

compliance team would also “monitor processes and conduct spot checks”.

4.138. TJM was unable to locate records of the monitoring carried out on the Solo Trading

by a designated staff member or by its compliance team. The Compliance

Consultant confirmed to the Authority that they had not considered trade

monitoring as it was not within their remit.

4.139. TJM stated that the monitoring it did carry out in relation to the Solo Trading was

manual “spot-checking” by one staff member and acknowledged that this was a

lower degree of monitoring than it carried out for other parts of its business.

TJM’s monitoring of the Solo Trading appears to have been limited to simply

monitoring calls to office telephone lines rather than any manual or automated

review of the Solo Trading trading data itself. Moreover, as mentioned in

paragraph 2.6, all of the Solo Trading was conducted via email or Brokermesh,

not placed via telephone. As a result, in practice TJM had no systems or controls

in place that were capable of effectively monitoring the Solo Trading.

4.140. As a result, TJM did not identify any concerning patterns of trading during the

Relevant Period.

4.141. The Authority has not seen any evidence that TJM substantively and/or

systematically monitored individual Solo Clients’ trading activities, nor that TJM

considered whether the trading was consistent with its (limited) knowledge and

understanding of the individual Solo Clients, their risk profile, or potential financial

crime risk indicators.

4.142. These factors, combined with the Firm’s failure to recognise or act upon obvious

risks, meant that TJM did not comply with its obligations to undertake appropriate

ongoing monitoring, including trade monitoring, which heightened the risk that

financial crime would go undetected.

4.143. During the Relevant Period, TJM purportedly executed high volume Cum-Dividend

Trading for the Solo Clients to the value of approximately £78.26 billion in Danish

and Belgian equities. TJM received commissions of £1,388,331 from the Solo

Trading, which made up approximately 41% of the Firm’s revenue during the

Relevant Period.

4.144. TJM purportedly started executing trades on behalf of the Solo Clients on 26

February 2014. The Firm understood that trading would be in large volumes and

had an expectation of overall revenue from the Solo Trading of approximately

£500,000 per annum.

4.145. TJM initially conducted the Solo Trading via email. The Firm kept spreadsheets of

the trades that were purportedly executed and uploaded these at the end of each

day to a post-trade order matching platform for the Solo Group.

4.146. This process was discontinued with the implementation of Brokermesh on 25

February 2015, which also coincided with the establishment of TJM’s relationship

with the other Solo Group entities, as well as a reduction of 50% in its commission

entitlement and its change of role to act as a matched principal broker.

4.147. Brokermesh was an automated process on an electronic platform, developed by

an entity associated with the Solo Group, which generated trade orders from

clients which were transmitted to brokers, including TJM, but did not retain trading

records after the end of each day, beyond the creation of automated emails. It

was a closed network matching trades between the Solo Clients only with no

access to liquidity from public exchanges, which TJM described as “an order

management system”. It deleted all trading records at the close of every day.

4.148. During the Relevant Period, TJM executed purported OTC Cum-Dividend Trading

of approximately £37 billion.

4.149. TJM accepted every trade order placed on Brokermesh but explained that liquidity

was not always found and matched in full for the trades it sought to execute.

4.150. It was TJM’s understanding that Brokermesh automated the administrative

process in order to speed up communications and facilitate an anticipated increase

in the number of trades.

A.
Trade sizes

4.151. Between February 2014 and August 2015, TJM purportedly executed Cum-

Dividend Trading, to the value of approximately £58.55 billion in Danish equities

and £19.71 billion in Belgian equities on behalf of Solo Clients.

4.152. Analysis of this Cum-Dividend Trading reveals the following:

a) TJM purportedly executed ‘buy’ orders on behalf of Solo Clients in 16 Danish

stocks over 22 cum-dividend dates. An average of 16.77% of the outstanding

shares in each stock was traded, which were cumulatively worth a total of

£58.5 billion. The volumes also equated to an average of 47 times the total

number of all shares traded in those stocks on European exchanges.

b) TJM purportedly executed ‘buy’ orders on behalf of Solo Clients in 15 Belgian

stocks over 14 cum-dividend dates. An average of 5.65% of the outstanding

shares in each stock was traded, which were cumulatively worth £19.71

billion. The volumes also equated to an average of 22 times the total number

of all shares traded on European exchanges.

c)
The aggregate value of Cum-Dividend trades purportedly executed by TJM

on behalf of Solo Clients on a cum-dividend date were in a range of

approximately £91.4 million to £13 billion for a Danish equity and

approximately £49 million to £6.18 billion for a Belgian equity.

4.153. The Authority considers that it is significant for market surveillance and visibility

that individual trades were below the applicable disclosable thresholds. For

example, section 29 of the Danish Securities Trading Act required shareholders

holding over 5% of Danish-listed stock to be publicised. Similarly, Belgian law

requires pursuant to Article 6 of the ‘Law of 2 May 2007 on disclosure of major

holdings in issues whose shares are admitted to trading on a regulated market

and laying down miscellaneous provisions’ holders of more than 5% of the existing

voting rights to notify the issuer and the Belgian Financial Services Markets

Authority of the number and proportion of voting rights that he/she holds.

4.154. The purported Cum-Dividend Trading executed by TJM on behalf of the Solo

Clients represented up to 24% (an average of 16.77%) of the shares outstanding

in the companies listed on the Danish stock exchange, and up to 10% (an average

of 5.65%) of the shares outstanding in companies listed on the Belgian stock

exchange.

B.
Awareness and review of Solo Trading

4.155. TJM was aware of the trade sizes it purportedly executed on behalf of the Solo

Clients across the Relevant Period, as the total trading volume was made available

to the Firm’s senior management on a daily basis through internal

communications and spreadsheets used by TJM to calculate its commission.

4.156. Once the Solo Trading commenced, TJM did not undertake a review of the sizes

and volumes of the transactions executed to ensure the level of trading was

consistent with their understanding of the Solo Clients’ risk profile. As a result,

TJM failed to consider a number of key facts relevant to on-going monitoring and

financial crime risk. These included but were not limited to the total sizes that

were being traded, the amount of shares outstanding in the relevant stocks and

any applicable disclosure thresholds for major shareholders (which, had TJM done

so, would have indicated that the volumes of Solo Trading were implausible).

4.157. On 18 March 2014, almost a month after the Solo Trading had commenced, an

internal TJM email provided an update with regards to the trades for the day,

which stated:

Employee 1: “What was the nominal value?”

Employee 2: “£2.9billion today”

Employee 2: “Apparently this is just the start. Going to be more by the end

of May!”

4.158. On the same day, an email followed from TJM’s senior management to the wider

team at TJM stating “… we have had another sterling performance today on the

Solo account and another Firm record broken”.

4.159. On 26 February and 31 March 2014, TJM executed Cum-Dividend Trading to the

value of approximately £518 million on behalf of a Solo Client that had been

incorporated on 30 January 2014 and whose UBO had worked at Solo Group until

January 2014. A TJM staff member acknowledged that these trades were

“massively big” and would “certainly require further explanations”. However,

there is no evidence showing any follow-up enquiries were actually made, nor that

TJM conducted any additional monitoring in respect of the Solo Client.

4.160. This early indication of the high volume of trading ought to have prompted TJM

to consider financial crime risk and review whether the trading was in line with

the Solo Clients’ profile, whether the Solo Clients had sufficient funds to settle the

trades, and whether the trade sizes affected their risk profiles.

4.161. Minutes of a TJM “Compliance Meeting” dated 25 March 2014 suggest that TJM

had further discussions about the Solo Group business where they appear to have

reviewed this business as a result of a few “areas of uncertainty”; including

transaction reporting, legality, AML and other concerns.

4.162. On 26 March 2014, TJM met with another of the Broker Firms “to examine, on an

informal basis”, the respective relationships between TJM, the Broker Firm and

the Solo Group, and also the trading process to date. One of the questions raised

by TJM was “regarding the size and purpose of trades executed in mainly Danish

cash equities over the past 30 days”.

4.163. TJM therefore had sufficient concerns to warrant external discussions with the

other Broker Firm to examine their relationships and trading process with the Solo

Group. However, it failed to implement adequate measures and adapt its

approach as a result of these concerns, including undertaking a risk assessment

or further monitoring or due diligence in respect of each Solo Client.

4.164. Instead, TJM proceeded on the assumption that the Solo Clients would be trading

in sizes wholly in excess of their relevant disclosed capital as part of a complex

series of transactions and that the Solo Clients had sourced sufficient funds to

conduct such trading from elsewhere. TJM, however, did not make any enquiries

or request any further information as to the source of funds of the Solo Clients

which would enable them to conduct such trading.

4.165. By way of example, on 19 March 2015, TJM received and executed a buy order to

the value of approximately £208 million in ‘Stock C’ on behalf of one of the 401(k)

Pension Plans (“Client A”) owned by the college student mentioned at paragraph

4.86 above. Of note:

a) Full liquidity was sourced on Brokermesh within seven minutes;

b) The volume of shares executed by TJM on behalf of Client A represented 142%

of the volume of shares in ‘Stock C’ that was traded on European exchanges

by all other market participants on that day; and

c)
On the same day, TJM executed further ‘buy’ orders in ‘Stock C’ on behalf of

47 other Solo Clients to the value of approximately £10.2 billion. The shares

of Stock C traded by TJM represented 14.5% of the total shares outstanding.

4.166. TJM did not query how it was possible to find sufficient liquidity within a closed

network of clients and whether it was realistic that (i) a college student had the

funds to execute a trade that amounted to more than the entire day’s volume of

trading in Stock C across all European exchanges; nor (ii) how the Solo Clients

(which were mostly individual US 401(K) pension plans) had funds to trade in

such large amounts.

4.167. Instead, TJM stated that it took comfort that there were other counterparties

involved in similar business and relied upon their view of the reputation of people

behind the Solo Group. TJM claimed that they only had visibility of a small part of

a larger number of complex trades as executing broker, which would all have been

subject to the Solo Group’s approval. As a result, TJM failed to recognise the

obvious financial crime risks associated with the Solo Trading, and, consequently,

the risk that it might be used to further money laundering.

4.168. All regulated firms (including execution-only brokers) must consider and mitigate

the risk that they could be used to facilitate financial crime, even if client monies

do not flow directly through the firm. The Authority has published considerable

guidance on managing the risk of financial crime, particularly in its Financial Crime

Guide, which was first published in December 2011 and which TJM ought to have

been aware of.

The Ganymede Trades

4.169. Firms must have adequate policies and procedures, systems and controls which

provide for the identification, scrutiny and reporting of complex or large

transactions; unusual patterns of transactions which have no apparent economic

or visible lawful purpose; and any other activity which may be related to money

laundering. Firms are required to monitor customer transactions to assess risk

and ensure that they are not being used for the purpose of financial crime.

Ganymede Trade 1

4.170. On 16 June 2014 Clients D, E and F sent onboarding requests to TJM, two of which

the Solo Group advised as an “urgent onboarding”. They were onboarded between

17 and 20 June 2014. They all had a single UBO, who was a previous Solo Group

employee. Two of them were newly incorporated in the BVI in June 2014 and one

in the Cayman Islands in February 2014.

4.171. On 30 June 2014, a TJM staff member received a call from a Solo Group

representative, on his mobile phone, advising that TJM would receive emails from

a new group of clients seeking liquidity in a particular stock. The TJM staff member

was instructed by the Solo Group to seek this from a specific client. Later that

same day, TJM executed three buy orders on behalf of three Solo Clients (“Clients

D, E and F”), each owned by associates of Sanjay Shah, in a German stock

(“German stock A”) at a specified price of EUR 160.12 (to the value of EUR 440.8

million). Each trade was executed with Ganymede, which was owned by Sanjay

Shah. Shortly afterwards, TJM then executed a ‘buy’ order on behalf of Ganymede

in the same German stock for the same quantity at a higher price of EUR 160.98

to the value EUR 443.2 million, which were all sourced from the same three Solo

Clients, that is Clients D, E and F.

4.172. Together, these circular trades (“Ganymede Trade 1”) resulted in Ganymede

making a loss of EUR 2.4 million to the benefit of Clients D, E and F. Ganymede

Trade 1 had no apparent economic purpose except to transfer funds from Sanjay

Shah to his associates.

4.173. A chronology relating to Ganymede Trade 1 can be found at Annex D1. During

the Relevant Period, TJM did not execute any other trades on behalf of Clients D,

E and F.

4.174. Ganymede Trade 1 was escalated to TJM’s management on or around 3 July 2014

as some TJM staff had “major concerns” regarding these trades. As a result, TJM

requested an explanation from the Solo Group as the custodian of Ganymede

Trade 1, rather than approaching the clients directly. On 10 July 2014, the Solo

Group provided information “indicating the validity of the trades which Solo have

approved as custodian” and explained to TJM that these transactions “had been

internally evaluated and approved” and reflected the clients’ desire to “move

value” from one entity to others.

4.175. On 14 July 2014, TJM asked for its Compliance Consultant’s opinion on Ganymede

Trade 1. The Compliance Consultant suggested that the way forward is to produce

a full report if they consider it is a suspicious transaction and keep evidence that

the firm had identified and assessed the suspicious trades.

4.176. Minutes of a TJM “Compliance / Traders” meeting dated 16 July 2014 suggest two

separate issues were discussed:

a) “Did TJM act correctly or did it breach any FCA rules or other laws? Were we

acting within our scope of permission?”

b) “Were the trades themselves compliant or are the clients involved in market

abuse or acting improperly or illegally?”

4.177. The following unusual circumstances were also noted from those minutes:

a) TJM staff communicated with Solo Group via their personal mobile phone

about the client onboarding and liquidity seeking;

b) Solo Group alerted TJM to clients’ onboarding requests and orders before they

were made;

c)
Solo Group instructed TJM to seek liquidity specifically from Ganymede rather

than going to market or seeking it from a pool of clients;

d) It was the first time give up trades had been carried out between two clients

when normally they are carried out between one client and a broker;

e) Previous Solo Trading was carried out as ‘market-on-close’ (end of day price)

but these were limit orders (at market);

f)
Liquidity was matched within an hour despite a trade size of EUR 440 million,

which was noted by TJM in the minutes, as being “very hard to fill”;

g) The trade was reversed within the same group of clients at a different price

shortly after, at a loss of approximately EUR 2 million to Ganymede;

h) Only on this occasion, the trade was not booked on Brokermesh platform;

and

i)
This was the first time the trades were closed on the same day, whereas

usually the Solo Clients had positions open for weeks or months.

4.178. TJM further stated that they did not fully understand how the trade worked and

acknowledged that it appeared to be a departure from the usual Solo Trading.

4.179. On 18 July 2014, TJM’s Compliance Consultant produced a report in particular to

address the issues mentioned at paragraph 4.177, which set out that Ganymede

Trade 1 only appeared suspicious to TJM because they were only seeing one

aspect of the complicated trading, which the Solo Group described as a “book

squaring exercise”.

4.180. The Compliance Consultant concluded that a constant review of this activity from

the Solo Group and associated clients be maintained and another investigation

should take place if concerning trading occurred again. However, the Authority

notes the Compliance Consultant’s report contradicted itself, by both (a) noting

that Clients D, E, F and C could not predict how the market would move when

they entered into Ganymede Trade 1; and (b) accepting the Solo Group

explanation provided for Ganymede Trade 1, which implies the activity was pre-

determined in relation to the direction and size of intended profits, and designed

losses to ensure the trade would move “value from one entity to its correct

destination”;

4.181. TJM did not appear to have considered requesting documents or information to

support the Solo Group’s explanation of the Ganymede Trade 1, or what the Solo

Group’s role in the trade might have been.

4.182. Further, TJM had not identified or considered:

a)
Whether, given doubts from staff over the plausibility of Clients D, E and F

or Ganymede sourcing such sizeable liquidity in such short order, Ganymede

Trade 1 was in line with the trading volumes which could be expected from

these clients, given the limited information previously obtained through

CDD;

b)
Whether this liquidity was plausible in the market, given that the volume of

shares of German stock A purportedly executed by TJM in Ganymede Trade

2 represented 3.17 times the volume of shares traded on European

exchanges in that security by all other market participants on that day;

c)
Notwithstanding the issues with the Solo Group’s explanation, why Solo

Group staff would be involved in directing how clients’ orders were filled, or

what implication this could have regarding the reliability of the Solo Group

as a source of information in relation to Ganymede Trade 1.

4.183. Instead, TJM appears to have relied solely on a statement provided by the Solo

Group that “these deals had been evaluated internally and approved”. Despite

having concerns as to whether Ganymede Trade 1 was pre-arranged and may

have had AML and/or market abuse implications, TJM did not follow up on these

concerns, rather, it noted “One big area of comfort is that Solo are fully aware of

all aspects of the transaction”.

Ganymede Trade 2

4.184. On 29 January 2014, Clients G, H and I sent onboarding requests to TJM and they

were onboarded between 26 and 28 March 2014. They all had a single UBO and

were incorporated in the BVI in September 2013.

4.185. On 23 October 2014, TJM executed three buy orders on behalf of these three Solo

Clients (“Clients G, H and I”), each owned by further associates of Sanjay Shah,

in the same German stock A as Ganymede Trade 1 at a specified price of EUR

147.05 to the value of EUR 170.0 million, which were all sourced from Ganymede.

Shortly afterwards, TJM then executed a buy order on behalf of Ganymede in

German stock A at a higher price of EUR 149.06 to the value of EUR 172.3 million,

which were all sourced from the same three Solo Clients, that is Clients G, H and

I.

4.186. Together, these circular trades (“Ganymede Trade 2”), in a similar fashion to

Ganymede Trade 1, resulted in Ganymede making another loss of EUR 2.3 million

to the benefit of Clients G, H and I. Again, Ganymede Trade 2, had no apparent

economic purpose except to transfer funds from Sanjay Shah to his associates.

4.187. A chronology relating to Ganymede Trade 2 can be found at Annex D2. Prior to

Ganymede Trade 2, TJM had purportedly executed the Solo Trading (eight ‘sell’

orders in Belgian equities) on behalf of Clients G, H and I between 17 April 2014

and 2 May 2014 to the aggregate value of approximately £2.03 billion.

4.188. On 23 October 2014, TJM staff identified numerous unusual circumstances about

Ganymede Trade 2 prior to executing the second part of the trades (which

occurred later on the same day):

a)
Ganymede Trade 2 was conducted in a similar manner to Ganymede Trade

1;

b)
The initial sale of German shares by Ganymede at EUR 147.05 was “inside

the daily trading range but 3 Euros away from the prevailing market price,

(rather than the close)”;

c)
Ganymede Trade 2 involved a total volume of 1,156,062 shares in a context

where the “average daily volume for this stock is 700,000”, and with only

“352,000 shares having been traded” on exchange, on the day the trade

occurred;

d)
Ganymede Trade 2 was carried out between Solo Clients, rather than trading

through another regulated entity. All three of Clients G, H and I had their

full orders settled by just one counterparty, Ganymede;

e)
TJM staff noted: “Similar to last time the trades are being unwound today

(no doubt at a different price) rather than letting them run the course”; and

f)
Ganymede, identified as Sanjay Shah’s company, “incurred over €2.3m

loss”, to the gain of Clients G, H and I.

4.189. Minutes of a TJM “Compliance / Management” meeting, dated 13 November 2014,

described Ganymede Trade 2 as a “major topic” on the meeting agenda, where

the above points at paragraph 4.188 were reiterated.

4.190. At the meeting TJM appeared to reach the conclusion that “These transactions

appear at face value to be unusual and require an explanation.” and a staff

member would therefore speak to a Solo Group representative “about a number

of issues pop the question in so as not to arose any suspicion”.

4.191. TJM stated that it considered Ganymede Trade 2 was not the “normal trading

pattern of Solo business and it was unusual”. In that respect, it had concerns that

Ganymede Trade 2 may have constituted a potential “breach” and was concerned

not to tip-off the Solo Group and ultimately Sanjay Shah, who was also the owner

of Ganymede.

4.192. On 25 November 2014, a TJM staff member met with a Solo Group representative

to discuss the matter but stated they were unable to recall the outcome of this

meeting. There is no record of that discussion, or of what explanation (if any) was

provided by the Solo Group in relation to Ganymede Trade 2.

4.193. Minutes of a further TJM “Compliance / Management” meeting dated 3 December

2014 which was focused on Ganymede Trade 2 recorded that:

a)
TJM concluded that “on the face of it are unlikely to involve market abuse

and there appears to be no suggestion of criminal activity as some the

parties are connected with Solo”.

b)
TJM further concluded that there was no evidence of money laundering as

those behind the trades were connected with the Solo Group.

c)
TJM assumed that the Solo Group, who would oversee all of the trading

activity, would carry out the settlement of Ganymede Trade 2.

d)
No explanation was recorded as being provided to TJM by the Solo Group in

relation to Ganymede Trade 2.

4.194. In Ganymede Trade 1 and 2, TJM failed to identify or consider:

a)
How Clients G, H and I or Ganymede would have been able to source such

sizeable liquidity in such short order (in light of the limited market liquidity

identified by TJM staff), and whether this was in line with the trading levels

which could be expected from these clients, given the information previously

obtained through CDD;

b)
Whether the liquidity was plausible in the market, given that the volume of

shares of German stock A purportedly executed by TJM in Ganymede Trade

1 and 2 represented 3.17 times and 1.12 times the volume of shares traded

on European exchanges in that security by all other market participants on

the respective days;

c)
TJM appears to have relied solely on a statement provided by the Solo Group

that “these deals had been evaluated internally and approved” and reflected

the clients’ desire to “move value” from one entity to others. Despite having

concerns as to whether Ganymede Trade 1 was pre-arranged and may have

had AML and/or market abuse implications, TJM did not follow up on these

concerns nor requesting documents or information to support the Solo

Group’s explanation, rather, it merely noted “One big area of comfort is that

Solo are fully aware of all aspects of the transaction”.

d)
Similarly, the correspondence surrounding Ganymede Trade 2 exhibited

numerous indicators of a predetermined set of transactions with no

economic purpose, which was highly indicative of potential financial crime.

For example:

i.
Solo pre-alerted and instructed TJM to seek liquidity specifically from

Ganymede and within 13 minutes three separate clients contacted

TJM seeking liquidity for large volumes without mentioning prices;

ii.
It is unusual that liquidity was matched for such a large volume of

shares (1,156,062) within just 37 minutes;

iii.
Within seven minutes, three separate clients offered the same

purchase price of EUR 147.05;

iv.
Just one hour after Ganymede had sold the shares, it offered to

reverse the positions to buy back all the shares at a higher price of

EUR 149.06; and

v.
Within a further nine minutes the same group of clients agreed to sell

back the shares back.

e)
While TJM believed Ganymede Trade 2 was prearranged this remained

irreconcilable with Ganymede’s explanation for requesting to buy back the

German stock it had sold, purportedly because it is “worried about the

exposure on the trade now”;

f)
Notwithstanding the issues with Solo Group’s explanation, TJM did not

consider why Solo Group staff would be involved in directing how clients’

orders were filled or what implication this might have regarding the reliability

of Solo Group as a source of information, or a source of comfort regarding

the potential money laundering risks;

g)
TJM informed the Authority that they had not considered money laundering

concerns to be their responsibility as an execution only broker, which did

not process the settlement of cash or shares, rather, they viewed this as the

responsibility of the Solo Group; and

h)
Despite TJM’s Compliance Consultant’s advice on 18 July 2014 to undertake

further investigation if concerning trading occurred again, no such

investigation or steps appear to have been taken.

4.195. TJM was unable to explain to the Authority how it concluded at the 3 December

2014 meeting that all of its concerns on Ganymede Trade 2 had been addressed.

Significantly, TJM was unable to explain how it reached these conclusions in spite

of its initial concerns on 13 November 2014 regarding the suspicious nature of

Ganymede Trade 2 and without making any further enquiries to the Solo Group

or seeking an explanation from the clients directly.

Ganymede Trade 3

4.196. On 16 July 2015, TJM declined to execute a trade in a German stock (“German

stock B”) between a new client Client J as the buyer, which the Firm believed was

not connected to the Solo Group and Client L as the seller. TJM understood that

Client L was owned by a relative of Sanjay Shah and had ties to the issuer of

German stock B.

4.197. On 18 August 2015, TJM declined to execute another trade in German stock B

between Client J as the seller and Client L as the buyer.

4.198. TJM staff identified a number of unusual circumstances in these two declined

trades (“Ganymede Trade 3”) in particular that, Client J had recently bought

shares in German stock B from Client L and was looking to sell back to Client L

within approximately a month, therefore making the economic purpose of the

trades unclear.

4.199. On 18 August 2015, TJM informed Solo Group that it felt uncomfortable to proceed

as a result of (i) the direction of the trade and its timing following the first declined

leg; and (ii) the relationships involved between Clients J and K, Solo Group,

Sanjay Shah and the issuer of Ganymede stock B.

4.200. Distinguishing Ganymede Trade 3 from Ganymede Trades 1 and 2, TJM explained

the key difference in approach had been the opportunity to review the information

they had and to reject the trade prior to its execution; that is TJM may have

rejected Ganymede Trades 1 and 2 had the opportunity presented itself in time,

but it didn’t. However, given there was a time gap of some four months between

Ganymede Trade 1 and 2, TJM had had ample time and opportunities to consider

the similar circumstances in executing or declining Ganymede Trade 2.

Reliance on external compliance consultant

4.201. On three occasions during the Relevant Period, TJM sought and received

compliance advice from an external compliance consultant: in March 2014

regarding “dividend washing trading”, in July 2014 concerning first Ganymede

Trade, and in March 2015 regarding client onboarding processes. However, the

scope of the consultant’s engagement on each occasion was very narrow, with

limited information provided by TJM. The external consultant’s invoices charged

only three hours on each of the first two occasions and eight hours on the third

occasion. The compliance consultant described their oversight as “just dipping

into it in the very tiniest lightest look, there wasn’t any deep dives [sic], we didn’t

see any of the detailed transactions, what was going through”, and business size

was not mentioned.

End of the Purported Solo Trading and Payment

4.202. TJM executed its last purported trade for a Solo Client on 28 September 2015.

4.203. On 29 October 2015, TJM was contacted by a Solo Group representative via

telephone and ‘WhatsApp’ to present an unsolicited initial offer for a company in

the name of Elysium Global (Dubai) Limited (“Elysium”) to purchase 95% of

outstanding debts owed to TJM by the Solo Group by the Solo Clients.

4.204. TJM has explained to the Authority that this debt factoring facility offer came “out

of the blue” and it had not previously heard of Elysium.

4.205. Following the initial contact, TJM carried out due diligence on Elysium which was

limited to internet searches and searches via ‘CreditSafe’. During this process,

TJM became aware that Sanjay Shah was a board member of Elysium which was

wholly owned by Elysium Global Limited, a UK company.

4.206. Internal email correspondence within TJM on 29 October 2015 suggests that one

member of staff queried the reason for the debt factoring offer and stated:

“I am rather shocked! Why have they made this offer? Was this their idea or
ours?

I am in two minds about this: Part of me is thinking it is better to take money
now, than risk getting nothing in the future! (what guarantee is there that they
will pay?)

And then this could be seen be seen as a further reduction of income from their
business (or increased charges) from last year!”

4.207. On 2 November 2015, Elysium contacted TJM to provide “official confirmation”

that it wanted to extend a debt factoring facility against TJM’s trading debtors.

TJM then requested a contract and a list of the debts Elysium wanted to buy.

Further internal email correspondences at TJM stated:

“Very strange. Happy either way re factoring... Let's just make sure things are

airtight from our perspective.”

4.208. Later that day, TJM was notified by the Solo Group that it was “closing down” and

no longer offering the Solo Trading. This information had not been announced

publicly.

4.209. On 3 and 4 November 2015, the Authority made unannounced visits to the offices

of TJM, the Solo Group entities and the other Broker Firms, which is when the

Firm became aware of wider concerns regarding the Solo Group business. Prior to

the visit, the Firm was alerted by press articles to concerns regarding the Solo

Group which it did not follow up on.

4.210. Although TJM was keen to finalise a debt factoring agreement with Elysium prior

to any payment, and despite asking on several occasions, ultimately the

documentation “was not forthcoming”.

4.211. On 4 November 2015, TJM responded to an “official confirmation” email from

Elysium and stated:

“In lieu of receiving the documentation as discussed, can you arrange a transfer

for the funds you would like to purchase from us… I will send through copies of

the invoices for your records separately… Our bank details for USD payments are

as follows…”

4.212. On 6 November 2015, Elysium asked TJM to confirm the payment amount of USD

117,971, which was agreed, and attached an International Wire Transfer

Confirmation.

4.213. Later that day TJM had not received the payment and had concerns as to whether

and/or when they would receive the payment from Elysium. A member of staff

commented that “it reminds me of the Nigerian email scams”. This comment

reveals that without resolving its concerns, TJM accepted this highly suspicious

payment.

4.214. On 25 November 2015, TJM eventually received payment of USD 117,960 from

Elysium (the “Elysium Payment”) although it still had not received any formal

agreement with Elysium.

4.215. Despite internal comments regarding the Elysium Payment, TJM has informed the

Authority that the transaction “did not of itself give rise to any concerns”. Indeed,

the Firm admitted that their only concern at the time was whether or not they

would be paid commission owed by the Solo Clients.”

4.216. TJM therefore did not consider associated financial crime and money laundering

risks posed to the Firm in relation to the Elysium Payment. This was in spite of

the fact that TJM was aware Sanjay Shah was a board member of Elysium and

the Authority had conducted an unannounced visit alerting TJM to possible issues

with the Solo Group days before TJM accepted the Elysium Payment.

4.217. The circumstances by which TJM was presented with a debt factoring offer for a

company it had not heard of before, which was an entity based in the UAE with

no assumed regulatory equivalence, together with the Firm’s acceptance of the

offer and receipt of funds without any agreement in place, is striking and suggests

that TJM failed to adequately consider associated financial crime and money

laundering risks. This is particularly concerning as ‘cross border transactions’ and

‘products with reduced paper trails’ are specifically listed in the JMLSG guidance

as factors that will generally increase the risk of money laundering for invoice

finance products.

Failure to identify and escalate above issues

4.218. TJM failed to identify and escalate any of the above issues. With respect to anti-

money laundering and financial crime risk during the Relevant Period, TJM did not

identify any transactions raising any suspicions and no breaches were reported or

observed.

5. FAILINGS

5.1.
The statutory and regulatory provisions relevant to this Warning Notice are

referred to in Annex B.

5.2.
The JMLSG Guidance has also been included in Annex B, because in determining

whether breaches of its rules on systems and controls against money laundering

have occurred, and in determining whether to take action for a financial penalty

or censure in respect of a breach of those rules, the Authority has also had regard

to whether TJM followed the JMLSG Guidance.

5.3.
Principle 3 requires a firm to take reasonable care to organise and control its

affairs responsibly and effectively, with adequate risk management systems.

5.4.
The breaches revealed serious or systemic weaknesses in both the Firm’s

procedures and the management systems or internal controls relating to the

Firm’s governance of financial crime risk.

5.5.
TJM breached this requirement during the Relevant Period in relation to the Solo

Clients and the purported Solo Trading, Ganymede Trades and the Elysium

Payment, as its policies and procedures were inadequate for identifying, assessing

and mitigating the risk of financial crime as TJM failed to:

a) Provide adequate guidance on when and how to conduct risk assessments of

new clients and what factors to consider in order to determine the appropriate

level of CDD to be applied to clients;

b) Set out adequate processes and procedures for CDD, including in relation to

obtaining and assessing information when onboarding new clients;

c)
Set out adequate processes and procedures detailing when and how to

conduct EDD;

d) Design and implement any effective process and procedures for ongoing

monitoring, including when and how transactions were to be monitored, with

what frequency and in relation to record keeping; and

e) Set out processes and procedures for identifying, managing, escalating and

documenting financial crime and AML risks.

5.6.
The Authority also considers that TJM failed to act with due skill, care and diligence

as required by Principle 2 in assessing, monitoring and managing the risk of

financial crime associated with the Solo Clients and the purported Solo Trading,

Ganymede Trades and Elysium Payment, in that the Firm failed to:

a) Conduct appropriate customer due diligence, by failing to follow even its own

limited CDD procedures;

b) Gather adequate information when onboarding the Solo Clients to enable it to

understand the business that the customers were going to undertake,

including the likely size and frequency of the intended trading;

c)
Conduct risk assessments for any of the Solo Clients;

d) Complete EDD for any of the Solo Clients despite numerous risk factors being

present which ought to have made it clear to the Firm that EDD was required;

e) Assess each of the Solo Clients against the categorisation criteria set out in

COBS 3.5.2R and failed to record the results of such assessments, including

sufficient information to support the categorisation, contrary to COBS

3.8.2R(2)(a);

f)
Conduct ongoing monitoring, including any monitoring of the Solo Trading

and Ganymede Trades;

g) Recognise numerous red flags with the Solo Trading. These included failing to

consider whether it was plausible and/or realistic that sufficient liquidity was

sourced within a closed network of entities for the high volumes of trading

conducted by the Solo Clients. Likewise, TJM failed to consider or recognise

that the profiles of the Solo Clients meant that they were highly unlikely to

be capable of the volume of the trading purportedly being carried out, and

made no attempts to at least obtain sufficient evidence of the clients’ source

of funds to satisfy itself to the contrary;

h) Recognise numerous red flags arising from the purported Ganymede Trades

and adequately consider the serious financial crime and money laundering

risks they posed to the Firm; and

i)
Adequately consider associated financial crime and money laundering risks

posed by the Elysium Payment after employees questioned several red flags

regarding the payment, and shortly after the Authority had conducted an

unannounced visit alerting TJM relating to possible issues with the Solo Group.

6. SANCTION

6.1.
The Authority has considered the disciplinary and other options available to it and

has concluded that a financial penalty is the appropriate sanction in the

circumstances of this particular case.

6.2.
The Authority’s policy on the imposition of financial penalties is set out in Chapter

6 of DEPP. In determining the financial penalty, the Authority has had regard to

this guidance.

6.3.
DEPP 6.5A sets out a five-step framework to determine the appropriate level of

financial penalty.

Step 1: disgorgement

6.4.
Pursuant to DEPP 6.5A.1G, at Step 1 the Authority seeks to deprive a firm of the

financial benefit derived directly from the breach where it is practicable to

quantify.

6.5.
The financial benefit associated with TJM’s failings is quantifiable by reference to

the revenue it received and derived from the Solo business as described in the

Notice was £1,334,143 minus the custodian fees paid of £135,865.

6.6.
The figure after Step 1 is therefore £1,198,277.

Step 2: the seriousness of the breach

6.7.
Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that

reflects the seriousness of the breach. Where the amount of revenue generated

by a firm from a particular product line or business area is indicative of the harm

or potential harm that its breach may cause, that figure will be based on a

percentage of the Firm’s revenue from the relevant products or business area.

6.8.
The Authority considers that the revenue generated by TJM is indicative of the

harm or potential harm caused by its breach. The Authority has therefore

determined a figure based on a percentage of TJM’s relevant revenue during the

period of the breach.

6.9.
TJM’s relevant revenue is the revenue received and derived from the purported

Solo Trading and the Ganymede Trades, less the related custodian fees paid. The

period of TJM’s breach was from 29 January 2014 to 25 November 2015. The

Authority considers TJM’s relevant revenue for this period to be £1,334,143.

6.10.
In deciding on the percentage of the revenue that forms the basis of the step 2

figure, the Authority considers the seriousness of the breach and chooses a

percentage between 0% and 20%. This range is divided into five fixed levels which

represent, on a sliding scale, the seriousness of the breach; the more serious the

breach, the higher the level. For penalties imposed on firms there are the following

five levels:

Level 1 – 0%

Level 2 – 5%

Level 3 – 10%

Level 5 – 20%

6.11.
In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly. DEPP 6.5A.2G lists factors likely to be considered ‘level

4 or 5 factors’. Of these, the Authority considers the following factors to be

relevant:

1.
The breaches revealed serious or systemic weaknesses in the Firm’s

procedures and the management systems or internal controls relating to the

Firm’s governance of financial crime risk; and

2.
The breaches created a significant risk that financial crime would be

facilitated, occasioned or otherwise occur.

6.12.
Taking all of these factors into account, the Authority considers the seriousness

of the breach to be level 4 and so the Step 2 figure is 15% of £1,334,143.

6.13.
Step 2 is therefore £200,121

Step 3: mitigating and aggravating factors

6.14.
Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2, but not including any

amount to be disgorged as set out in Step 1, to take into account factors which

aggravate or mitigate the breach.

6.15.
The Authority considers that the following factor aggravates the breach:

1.
The Authority and the JMLSG Guidance have published numerous documents

highlighting financial crime risks and the standards expected of firms when

dealing with those risks. The most significant publications include the JMLSG

Guidance and Financial Crime Guide (including the thematic reviews that are

referred to therein) which was first published in December 2011. These

publications set out good practice examples to assist firms, for example in

managing and mitigating money laundering risk by (amongst other things)

conducting appropriate customer due diligence, monitoring of customers’

activity and guidance of dealing with higher-risk situations. Given the

number and detailed nature of such publications, and past enforcement

action taken by the Authority in respect of similar failings by other firms,

TJM should have been aware of the importance of appropriately assessing,

managing and monitoring the risk that the Firm could be used for the

purposes of financial crime.

2.
In addition, DEPP 6.5A.3G(2)(c) says: “where the firm’s senior management

were aware of the breach or of the potential for a breach, whether they took

any steps to stop the breach, and when these steps were taken”. The senior

management of TJM were aware of the potential for breaches as it had

concerns in relation to the Solo Business, Ganymede Trades and Elysium

Payment but still continued to conduct these risky business activities,

probably due to the Solo business represented approximately 41% of the

Firm’s revenue in during the Relevant Period.

6.16.
The Authority considers that there are no mitigating factors.

6.17.
Having taken into account these aggravating and mitigating factors, the Authority

considers that the Step 2 figure should be increased by 20%.

6.18.
Step 3 is therefore £240,145.

Step 4: adjustment for deterrence

6.19.
Pursuant to DEPP 6.5A.4G, if the Authority considers the figure arrived at after

Step 3 is insufficient to deter the firm who committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the

penalty.

6.20.
The Authority considers that DEPP 6.5A.4G(1)(a) is relevant in this instance and

has therefore determined that this is an appropriate case where an adjustment

for deterrence is necessary. Without an adjustment for deterrence, the financial

penalty would be £240,145. In the circumstances of this case, the Authority

considers that a penalty of this size would not serve as a credible deterrent to TJM

and would not meet the Authority’s objective of credible deterrence. As a result,

it is necessary for the Authority to increase the penalty to achieve credible

deterrence.

6.21.
Having taken into account the factor outlined in DEPP 6.5A.4G, the Authority

considers that a multiplier of five should be applied at Step 4.

6.22.
Step 4 is therefore £1,200,729.

Step 5: settlement discount

6.23.
Pursuant to DEPP 6.5A.5G, if the Authority and the firm on whom a penalty is to

be imposed agree the amount of the financial penalty and other terms, DEPP 6.7

provides that the amount of the financial penalty which might otherwise have

been payable will be reduced to reflect the stage at which the Authority and the

firm reached agreement. The settlement discount does not apply to the

disgorgement of any benefit calculated at Step 1.

6.24.
The Authority and TJM did reach agreement to settle so a 30% discount applies

to the Step 4 figure.

6.25.
The Authority has rounded down the final penalty to the nearest £100. Step 5 is

therefore £2,038,700.

6.26.
The Authority hereby imposes a financial penalty of £2,038,700 on TJM for

breaching Principle 2 and Principle 3.

7. PROCEDURAL MATTERS

7.1.
This Notice Is given to TJM in accordance with section 390 of the Act. The

following statutory rights are important.

Decision maker

7.2.
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

Manner of and time for payment of the financial penalty

7.3.
The financial penalty must be admitted in the liquidation of the Firm by no later

than 14 days from the date of the Final Notice.

7.4.
At this early stage of the liquidation process, there may be uncertainty

surrounding the recovery of assets and adjudication of creditors’ claims.

Therefore, the Authority does not reduce the financial penalty to £nil in this case.

Instead, the financial penalty will be ranked with other creditors of the Firm but

the Authority will keep it under review in order that legitimate creditors are

satisfied prior to any funds realised in the liquidation being used to pay some, or

all, of the financial penalty.

7.5.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this notice relates. Under those provisions,

the Authority must publish such information about the matter to which this notice

relates as the Authority considers appropriate. The information may be published

in such manner as the Authority considers appropriate. However, the Authority

may not publish information if such publication would, in the opinion of the

Authority, be unfair to you or prejudicial to the interests of consumers or

detrimental to the stability of the UK financial system.

7.6.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

7.7.
For more information concerning this matter generally, contact Giles Harry (direct

line: 020 7066 8072 / giles.harry@fca.org.uk) or Denise Ip (direct line: 020 7066

0237 / denise.ip@fca.org.uk) of the Enforcement and Market Oversight Division

of the Authority.

Mario Theodosiou
Head of Department
Financial Conduct Authority, Enforcement and Market Oversight Division








Annex A: Chronology
The Solo Project

First meeting between TJM and SCP representatives about the Solo
Project.

January 2014
Initial discussions between TJM and SCP regarding proposed the
business and commercial terms.

24 February 2014
TJM signed the SCP Services Agreement 2014.

29 January 2014
TJM received first on-boarding requests from Solo Clients custodied
at SCP.

26 February 2014
TJM commenced Solo Trading.

TJM Management, discuss cash flow problems at the firm and note
that, without the Solo Group business, the firm is losing £20,000 -
£25,000 per month.

TJM approach the Solo Group to discuss the potential to do further
business, e.g. by introducing TJM clients to the Solo Group.
Discussions result in a more detailed understanding of Solo’s “Yield
Enhancement Strategy”.

TJM Management congratulates employees for “another firm record
broken”, as TJM executes trades in Danish equities worth £2.9 billion
on behalf of Solo Clients.

TJM meet with its external Compliance Consultant to discuss
“Dividend Enhancement”, who subsequently provides written advice
on 2 April 2014.

TJM meets with one of the five Broker Firms to discuss “the
respective relationships of TJM and [the broker firm] with [SCP] and
the trading process to date”.

By 31 May 2014
TJM onboarded the first batch of 99 Solo Clients.

May to October
2014
TJM set up a specific on-boarding process for Solo Clients.

By 31 October 2014
TJM receives further onboarding requests from the second batch of
further 34 Solo Clients.

3 February 2015
TJM signed the new Services Agreements with each of the Solo
Group entities, agreeing to halved commission on trades.

23 February 2015
TJM Management concluded a “proper review” of numerous aspects
of the TJM business with Solo Group is necessary.

24 February 2015
TJM signed the Brokermesh Software Licence Agreement.

25 February 2015
TJM commenced trading on Brokermesh platform.

TJM received the third batch of further onboarding requests from 103
Solo Clients.

3-4 March 2015
TJM’s external Compliance Consultant produced a one page “Solo
client review” memo upon instruction by TJM.

The Compliance Consultant confirmed that TJM “have done
everything that is required” if they carry out PEP and sanction list
checks on individuals.

By 31 July 2015
TJM received the fourth batch of further onboarding requests from
75 Solo Clients. (

28 September 2015
TJM purportedly executed the last trade for Solo Clients.

Ganymede Trade 1

16 June 2014
TJM received onboarding requests from 3 Solo Clients (Clients D, E
and F).

17 June 2014
TJM received an onboarding request from a Solo Client (Ganymede).

A TJM staff member received a call from a Solo Group
representative, on his mobile phone, notifying a new group of clients
would send emails to TJM for liquidity, he was also instructed to seek
from a specific client.

TJM executed a set of trades through which Clients D, E and F made
an aggregate profit of approximately EUR 2.4 million at Ganymede’s
loss.

TJM Management discussed the trade, noting that traders reported
having “major concerns”, and decided to seek advice from its
external Compliance Consultant.

9-10 July 2014
TJM sought and obtained an explanation for the trades from the Solo
Group.

Ganymede Trade 2

29 January 2014
TJM received onboarding requests from 3 Solo Clients (Clients G, H
and I).

TJM executed a set of trades though which Clients G, H and I made
an aggregate profit of approximately EUR 2.3 million profit at
Ganymede’s loss.

TJM Management discussed the trades and concluded that “these
transactions appear at face value to be unusual and required an
explanation”, and resolved to discreetly approach Solo Group for an
explanation, “so as not to arose [sic] any suspicion”.

25 November 2014
TJM Management met with a Solo Group representative.

TJM Management concluded that the 23 October 2014 trades “on the
face of it are unlikely to involve market abuse and there appears to
be no suggestion of criminal activity […] no evidence of money
laundering […] no explanation provided thus far”.

Ganymede Trade 3

TJM received an order for German stock B from a prospective client
and expresses concern regarding the connections between parties to
the proposed trade. Using personal email addresses, TJM discusses
and votes not to execute the trade.

22 July 2015 to
14 August 2015

The prospective buyer of the 16 July 2015 order, was onboarded by
TJM at Solo Group’s request.

TJM agreed to decline a further proposed trade in German stock B
between the prospective buyer and seller. This occurred despite
assurances from a TJM’s staff that the trade is “legitimate”.

Acceptance of the factoring arrangement with Elysium

A Solo Group approached TJM to offer a “debt factoring
arrangement” such that Elysium purchases Solo Group’s debt to TJM
at a rate of 95% of the outstanding commission owed.


3 November 2015
The FCA conducted an unannounced visit at the TJM offices.

4 November 2015
TJM agreed to the factoring arrangement.

TJM received a payment of USD117,960.25 from Elysium Dubai. TJM
did not receive a contractual agreement from Elysium, despite
requests, to confirm the payment was the assigning of debt from
TJM to Elysium.

ANNEX B: RELEVANT STATUTORY AND REGULATORY PROVISIONS

1. RELEVANT STATUTORY PROVISIONS

The Financial Services and Markets Act 2000

1.1.
Pursuant to sections 1B and 1D of the Act, one of the Authority’s operational

objectives is protecting and enhancing the integrity of the UK financial system.

1.2.
Pursuant to section 206 of the Act, if the Authority considers that an authorised

person has contravened a requirement imposed on it by or under the Act, it may

impose on that person a penalty in respect of the contravention of such amount as

it considers appropriate.

The Money Laundering Regulations 2007

1.3.
Regulation 5 provides:

Meaning of customer due diligence measures

“Customer due diligence measures” means—

(a) identifying the customer and verifying the customer’s identity on the basis of

documents, data or information obtained from a reliable and independent
source;

(b) identifying, where there is a beneficial owner who is not the customer, the

beneficial owner and taking adequate measures, on a risk-sensitive basis, to
verify his identity so that the relevant person is satisfied that he knows who the
beneficial owner is, including, in the case of a legal person, trust or similar legal
arrangement, measures to understand the ownership and control structure of
the person, trust or arrangement; and

(c) obtaining information on the purpose and intended nature of the business

relationship.”

1.4.
Regulation 7 provides:

Application of customer due diligence measures

“(1) …, a relevant person must apply customer due diligence measures when he—

(a) establishes a business relationship;

(b) carries out an occasional transaction;

(c) suspects money laundering or terrorist financing;

(d) doubts the veracity or adequacy of documents, data or information

previously obtained for the purposes of identification or verification.

(2) Subject to regulation 16(4), a relevant person must also apply customer due

diligence measures at other appropriate times to existing customers on a risk-
sensitive basis.

(3) A relevant person must—


(a) determine the extent of customer due diligence measures on a risk-

sensitive basis depending on the type of customer, business relationship,
product or transaction; and


(b) be able to demonstrate to his supervisory authority that the extent of

the measures is appropriate in view of the risks of money laundering
and terrorist financing.”

1.5.
Regulation 8 provides:

Ongoing monitoring

“(1) A relevant person must conduct ongoing monitoring of a business relationship.

(2) “Ongoing monitoring” of a business relationship means—

(a) scrutiny of transactions undertaken throughout the course of the

relationship (including, where necessary, the source of funds) to ensure
that the transactions are consistent with the relevant person’s
knowledge of the customer, his business and risk profile; and

(b) keeping the documents, data or information obtained for the purpose of

applying customer due diligence measures up-to-date.

(3) Regulation 7(3) applies to the duty to conduct ongoing monitoring under
paragraph (1) as it applies to customer due diligence measures.”

1.6.
Regulation 14 provides:

Enhanced customer due diligence and ongoing monitoring

“(1) A relevant person must apply on a risk-sensitive basis enhanced customer due
diligence measures and enhanced ongoing monitoring—

72

(a) in accordance with paragraphs (2) to (4);

(b) in any other situation which by its nature can present a higher risk of

money laundering or terrorist financing.

(c) record-keeping;

(d) internal control;

(e) risk assessment and management;

(f) the monitoring and management of compliance with, and the internal

communication of, such policies and procedures,

in order to prevent activities related to money laundering and terrorist financing.

(2) Where the customer has not been physically present for identification purposes,

a relevant person must take specific and adequate measures to compensate
for the higher risk, for example, by applying one or more of the following
measures—

(a) ensuring that the customer’s identity is established by additional

documents, data or information;

(b) supplementary measures to verify or certify the documents supplied, or

requiring confirmatory certification by a credit or financial institution
which is subject to the money laundering directive;

(c) ensuring that the first payment is carried out through an account opened

in the customer’s name with a credit institution.”

1.7.
Regulation 17 provides:

“(1) A relevant person may rely on a person who falls within paragraph (2) (or who
the relevant person has reasonable grounds to believe falls within paragraph (2))
to apply any customer due diligence measures provided that—

(a) the other person consents to being relied on; and

(b) notwithstanding the relevant person’s reliance on the other person, the

relevant person remains liable for any failure to apply such measures.

(2) The persons are—

(a) a credit or financial institution which is an authorised person;
…

(4) Nothing in this regulation prevents a relevant person applying customer due
diligence measures by means of an outsourcing service provider or agent provided
that the relevant person remains liable for any failure to apply such measures.”

1.8.
Regulation 20 provides:

Policies and Procedures

“(1) A relevant person must establish and maintain appropriate and risk-sensitive
policies and procedures relating to—

(a) customer due diligence measures and ongoing monitoring;

(b) reporting;

(c) record-keeping;

(d) internal control;

(e) risk assessment and management;

(f) the monitoring and management of compliance with, and the internal

communication of, such policies and procedures,

in order to prevent activities related to money laundering and terrorist financing.

(2) The policies and procedures referred to in paragraph (1) include policies and
procedures—

a) which provide for the identification and scrutiny of—

(i) complex or unusually large transactions;

(ii) unusual patterns of transactions which have no apparent economic
or visible lawful purpose; and

(iii) any other activity which the relevant person regards as particularly
likely by its nature to be related to money laundering or terrorist
financing;”

2. RELEVANT REGULATORY PROVISIONS

2.1
In exercising its powers to impose a financial penalty, the Authority has had regard
to the relevant regulatory provisions published in the Authority’s Handbook. The
main provisions that the Authority considers relevant are set out below.

Principles for Business (“Principles”)

2.2
The Principles are a general statement of the fundamental obligations of firms
under the regulatory system and are set out in the Authority’s Handbook.

2.3
Principle 2 provides:

“A firm must conduct its business with due skill, care and diligence.

“A firm must take reasonable care to organise and control its affairs responsibly
and effectively, with adequate risk management systems.”

Senior Management Arrangements, Systems and Controls (“SYSC”)

2.5
SYSC 3.2.6E provides:

“The FCA, when considering whether a breach of its rules on systems and controls

against money laundering has occurred, will have regard to whether a firm has

followed relevant provisions in the guidance for the UK financial sector issued by

the Joint Money Laundering Steering Group”.

2.6
SYSC 3.2.6R provides:

“A firm must take reasonable care to establish and maintain effective systems and
controls for compliance with applicable requirements and standards under the
regulatory system and for countering the risk that the firm might be used to further
financial crime.”

2.7
SYSC 6.1.1R provides:

“A firm must establish, implement and maintain adequate policies and procedures
sufficient to ensure compliance of the firm including its managers, employees and
appointed representatives (or where applicable, tied agents) with its obligations
under the regulatory system and for countering the risk that the firm might be used
to further financial crime.”

2.8
SYSC 6.3.1R provides:

A firm must ensure the policies and procedures established under SYSC 6.1.1 R
include systems and controls that:

(1) enable it to identify, assess, monitor and manage money laundering risk; and

(2) are comprehensive and proportionate to the nature, scale and complexity of its
activities.

2.9
SYSC 6.3.6 provides:

“In identifying its money laundering risk and in establishing the nature of these

systems and controls, a firm should consider a range of factors, including:

(1) its customer, product and activity profiles;

(2) its distribution channels;

(3) the complexity and volume of its transactions;

(4) its processes and systems; and

(5) its operating environment”.

2.10
SYSC 6.3.7 provides:

“A firm should ensure that the systems and controls include:

(3) appropriate documentation of its risk management policies and risk profile in

relation to money laundering, including documentation of its application of those

policies;

(4) appropriate measures to ensure that money laundering risk is taken into

account in its day-to-day operation, including in relation to:

(a) the development of new products;

(b) the taking-on of new customers; and

(c) changes in its business profile”.

2.11
SYSC 9.1.1R provides:

“A firm must arrange for orderly records to be kept of its business and internal
organisation, including all services and transactions undertaken by it, which must
be sufficient to enable the appropriate regulator or any other relevant competent
authority under MiFID or the UCITS Directive to monitor the firm's compliance with

76

the requirements under the regulatory system, and in particular to ascertain that
the firm has complied with all obligations with respect to clients.”

Conduct of Business Sourcebook (COBS)

2.12
COBS 3.3 General notifications

COBS 3.3.1 provides:

“A firm must:

(1) notify a new client of its categorisation as a retail client, professional client, or
eligible counterparty in accordance with this chapter; and

(2) prior to the provision of services, inform a client in a durable medium about:

(a) any right that client has to request a different categorisation; and

(b) any limitations to the level of client protection that such a different
categorisation would entail.

[Note: paragraph 2 of section I of annex II to MiFID and articles 28(1) and (2)
and the second paragraph of article 50(2) of the MiFID implementing Directive]”

2.13
COBS 3.5.2 provides:

“Each of the following is a per se professional client unless and to the extent it is
an eligible counterparty or is given a different categorisation under this chapter:

(1) an entity required to be authorised or regulated to operate in the financial
markets. The following list includes all authorised entities carrying out the
characteristic activities of the entities mentioned, whether authorised by an EEA
State or a third country and whether or not authorised by reference to a directive:

(a) a credit institution;

(b) an investment firm;

(c) any other authorised or regulated financial institution;

(d) an insurance company;

(e) a collective investment scheme or the management company of such a

scheme;

(f) a pension fund or the management company of a pension fund;

(g) a commodity or commodity derivatives dealer;

(h) a local;

(i) any other institutional investor;

(2) in relation to MiFID or equivalent third country business a large undertaking
meeting two of the following size requirements on a company basis:

(a) balance sheet total of EUR 20,000,000;

(b) net turnover of EUR 40,000,000;

(c) own funds of EUR 2,000,000;

(3) in relation to business that is not MiFID or equivalent third country business a
large undertaking meeting any1of the following conditions:

(a) a body corporate (including a limited liability partnership) which has (or

any of whose holding companies or subsidiaries has) (or has had at any
time during the previous two years) 1called up share capital or net
assets 1of at least £51 million (or its equivalent in any other currency at
the relevant time);

(b) an undertaking that meets (or any of whose holding companies or

subsidiaries meets) two of the following tests:

(i)
a balance sheet total of EUR 12,500,000;

(ii)
a net turnover of EUR 25,000,000;

(iii)
an average number of employees during the year of 250;

(c) a partnership or unincorporated association which has (or has had at

any time during the previous two years) net assets of at least £5 million
(or its equivalent in any other currency at the relevant time) and
calculated in the case of a limited partnership without deducting loans
owing to any of the partners;

(d) a trustee of a trust (other than an occupational pension scheme, SSAS,

personal pension scheme or stakeholder pension scheme) which has (or
has had at any time during the previous two years) assets of at least
£10 million (or its equivalent in any other currency at the relevant time)
calculated by aggregating the value of the cash and designated
investments forming part of the trust's assets, but before deducting its
liabilities;

(e) a trustee of an occupational pension scheme or SSAS, or a trustee or

operator of a personal pension scheme or stakeholder pension scheme
where the scheme has (or has had at any time during the previous two
years):

(i) at least 50 members; and

(ii) assets under management of at least £10 million (or its
equivalent in any other currency at the relevant time);

(f) a local authority or public authority.

(4) a national or regional government, a public body that manages public debt, a
central bank, an international or supranational institution (such as the World Bank,
the IMF, the ECP, the EIB) or another similar international organisation;

(5) another institutional investor whose main activity is to invest in financial
instruments (in relation to the firm's MiFID or equivalent third country business) or
designated investments (in relation to the firm's other business). This includes
entities dedicated to the securitisation of assets or other financing transactions.”

2.14
COBS 3.8.2R provides:

“(2) A firm must make a record in relation to each client of:

(a) the categorisation established for the client under this chapter, including

sufficient information to support that categorisation;”

Decision Procedure and Penalties Manual (“DEPP”)

2.15
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of
financial penalties under the Act. In particular, DEPP 6.5A sets out the five steps
for penalties imposed on firms.

2.16
DEPP 6.2.3G provides:

“The FCA's rules on systems and controls against money laundering are set out in
SYSC 3.2 and SYSC 6.3. The FCA, when considering whether to take action for a
financial penalty or censure in respect of a breach of those rules, will have regard
to whether a firm has followed relevant provisions in the Guidance for the UK
financial sector issued by the Joint Money Laundering Steering Group.”

2.17
The Enforcement Guide sets out the Authority’s approach to taking disciplinary
action. The Authority’s approach to financial penalties and suspensions (including
restrictions) is set out in Chapter 7 of the Enforcement Guide.

3. JMLSG GUIDANCE – PART I (dated 19 November 2014)

A risk-based approach – governance, procedures and internal controls

3.1
JMLSG Paragraph 4.5 provides:

“A risk-based approach requires the full commitment and support of senior
management, and the active co-operation of business units. The risk-based
approach needs to be part of the firm’s philosophy, and as such reflected in the
procedures and controls. There needs to be a clear communication of policies and
procedures across the firm, along with the robust mechanisms to ensure that they
are carried out effectively, weaknesses are identified, and improvements are made
wherever necessary.”

3.2
JMLSG Paragraph 4.6 provides:

“Although the ML/TF risks facing the firm fundamentally arise through its important
that the firm considers its customer risks in the context of the wider ML/TF
environment inherent in the jurisdictions in which the firm and its customers
operate. Firms should bear in mind that some jurisdictions have close links with
other, perhaps higher risk jurisdictions, and where appropriate and relevant regard
should be had to this.”

3.3
JMLSG Paragraph 4.9 provides:

“The procedures, systems and controls designed to mitigate assessed ML/TF risks
should be appropriate and proportionate to these risks, and should be designed to
provide an effective level of mitigation.”

“A risk-based approach takes a number of discrete steps in assessing the most cost
effective and proportionate way to manage and mitigate the money laundering and
terrorist financing risks based by the firm. These steps are to:

➢ identify the money laundering and terrorist financing risks that are

relevant to the firm;

➢ assess the risks presented by the firm’s particular

➢ customers and any underlying beneficial owners*;

➢ products;

➢ delivery channels;

➢ geographical areas of operation;

➢ design and implement controls to manage and mitigate these assessed

risks, in the context of the firm’s risk appetite;

➢ monitor and improve the effective operation of these controls; and

➢ record appropriately what has been done, and why.

* In this Chapter, references to ‘customer’ should be taken to include beneficial
owner, where appropriate.”

“Whatever approach is considered the most appropriate to the firm’s money
laundering/terrorist financing risk, the broad objective is that the firm should know
at the outset of the relationship who their customers are, where they operate, what
they do, their expected level of activity with the firm and whether or not they are
likely to be engaged in criminal activity. The firm then should consider how the
profile of the customer’s financial behaviour builds up over time, thus allowing the
firm to identify transactions that may be suspicious.”

“In reaching an appropriate level of satisfaction as to whether the customer is
acceptable, requesting more and more identification is not always the right answer
– it is sometimes better to reach a full and documented understanding of what the
customer does, and the transactions it is likely to undertake. Some business lines
carry an inherently higher risk of being used for ML/TF purposes than others.”

3.7
JMLSG Paragraph 4.21 provides:

“However, as stated in paragraph 5.2.6, if a firm cannot satisfy itself as to the
identity of the customer; verify that identity; or obtain sufficient information on the
nature and intended purpose of the business relationship, it must not enter into a
new relationship and must terminate an existing one.”

3.8
JMLSG Paragraph 4.22 provides:

“While a risk assessment should always be performed at the inception of a customer
relationship (although see paragraph 4.16 below), for some customers a
comprehensive risk profile may only become evident once the customer has begun
transacting through an account, making the monitoring of transactions and on-

going reviews a fundamental component of a reasonably designed RBA. A firm
may also have to adjust its risk assessment of a particular customer based on
information received from a competent authority.”

3.9
JMLSG Paragraph 4.25 provides:

“For firms which operate internationally, or which have customers based or
operating abroad, there are additional jurisdictional risk considerations relating to
the position of the jurisdictions involved, and their reputation and standing as
regards the inherent ML/TF risk, and the effectiveness of their AML/CTF
enforcement regime.”

3.10
JMLSG Paragraph 4.50 provides:

“Where a customer is assessed as carrying a higher risk, then depending on the
product sought, it will be necessary to seek additional information in respect of the
customer, to be better able to judge whether or not the higher risk that the
customer is perceived to present is likely to materialise. Such additional information
may include an understanding of where the customer’s funds and wealth have come
from. Guidance on the types of additional information that may be sought is set
out in section 5.5.”

3.11
JMLSG Paragraph 4.51 provides:

“Where the risks of ML/TF are higher, firms must conduct enhanced due diligence
measures consistent with the risks identified. In particular, they should increase
the degree and nature of monitoring of the business relationship, in order to
determine whether these transactions or activities appear unusual or suspicious.
Examples of EDD measures that could be applied for higher risk business
relationships include:

➢ Obtaining, and where appropriate verifying, additional information on

the customer and updating more regularly the identification of the
customer and any beneficial owner

➢ Obtaining additional information on the intended nature of the business

relationship

➢ Obtaining information on the source of funds or source of wealth of the

customer

➢ Obtaining information on the reasons for intended or performed

transactions

➢ Obtaining the approval of senior management to commence or continue

the business relationship

➢ Conducting enhanced monitoring of the business relationship, by

increasing the number and timing of controls applied, and selecting
patterns of transactions that need further examination

➢ Requiring the first payment to be carried out through an account in the

customer’s name with a bank subject to similar CDD standards”

3.12
JMLSG Guidance paragraph 4.61 provides:

“Firms must document their risk assessments in order to be able to demonstrate
their basis, keep these assessments up to date, and have appropriate mechanisms
to provide appropriate risk assessment information to competent authorities.”

Enhanced due diligence

3.13
JMLSG Paragraph 5.5.1 provides:

“A firm must apply EDD measures on a risk-sensitive basis in any situation which
by its nature can present a higher risk of money laundering or terrorist financing.
As part of this, a firm may conclude, under its risk-based approach, that the
information it has collected as part of the customer due diligence process (see
section 5.3) is insufficient in relation to the money laundering or terrorist financing
risk, and that it must obtain additional information about a particular customer, the
customer’s beneficial owner, where applicable, and the purpose and intended
nature of the business relationship.”

3.14
JMLSG Paragraph 5.5.4 provides:

“In practice, under a risk-based approach, it will not be appropriate for every
product or service provider to know their customers equally well, regardless of the
purpose, use, value, etc. of the product or service provided. Firms’ information
demands need to be proportionate, appropriate and discriminating, and to be able
to be justified to customers.”

3.15
JMLSG Paragraph 5.5.5 provides:

“A firm should hold a fuller set of information in respect of those business
relationships it assessed as carrying a higher money laundering or terrorist
financing risk, or where the customer is seeking a product or service that carries a
higher risk of being used for money laundering or terrorist financing purposes.”

3.16
JMLSG Paragraph 5.5.6 provides:

“When someone becomes a new customer, or applies for a new product or service,
or where there are indications that the risk associated with an existing business
relationship might have increased, the firm should, depending upon the nature of
the product or service for which they are applying, request information as to the
customer’s residential status, employment and salary details, and other sources of
income or wealth (e.g., inheritance, divorce settlement, property sale), in order to
decide whether to accept the application or continue with the relationship. The firm
should consider whether or not there is a need to enhance its activity monitoring
in respect of the relationship. A firm should have a clear policy regarding the
escalation of decisions to senior management concerning the acceptance or
continuation of high-risk business relationships.”

3.17
JMLSG Paragraph 5.5.9 provides:

“The ML Regulations prescribe three specific types of relationship in respect of
which EDD must be applied. They are:

➢ where the customer has not been physically present for identification

purposes (see paragraphs 5.5.10ff);

➢ in respect of a correspondent banking relationship (see Part II, sector

16: Correspondent banking);

➢ in respect of a business relationship or occasional transaction with a PEP

(see paragraph 5.5.18ff).”

Reliance on third parties

3.18
JMLSG Paragraph 5.6.4 provides:

“The ML Regulations expressly permit a firm to rely on another person to apply any
or all of the CDD measures, provided that the other person is listed in Regulation
17(2), and that consent to be relied on has been given (see paragraph 5.6.8). The
relying firm, however, retains responsibility for any failure to comply with a
requirement of the Regulations, as this responsibility cannot be delegated.”

3.19
JMLSG Paragraph 5.6.14 provides:

“Whether a firm wishes to place reliance on a third party will be part of the firm’s
risk-based assessment, which, in addition to confirming the third party’s regulated
status, may include consideration of matters such as:

➢ its public disciplinary record, to the extent that this is available; the

nature of the customer, the product/service sought and the sums
involved; any adverse experience of the other firm’s general efficiency
in business dealings; any other knowledge, whether obtained at the

outset of the relationship or subsequently, that the firm has regarding
the standing of the firm to be relied upon.”

3.20
JMLSG Paragraph 5.6.16 provides:

“In practice, the firm relying on the confirmation of a third party needs to know:

➢ the identity of the customer or beneficial owner whose identity is being

verified; the level of CDD that has been carried out; and confirmation of
the third party’s understanding of his obligation to make available, on
request, copies of the verification data, documents or other information.

In order to standardise the process of firms confirming to one another that
appropriate CDD measures have been carried out on customers, guidance is given
in paragraphs 5.6.30 to 5.6.33 below on the use of pro-forma confirmations
containing the above information.”

3.21
JMLSG Paragraph 5.6.24 provides:

“A firm must also document the steps taken to confirm that the firm relied upon
satisfies the requirements in Regulation 17(2). This is particularly important where
the firm relied upon is situated outside the EEA.”

3.22
JMLSG Paragraph 5.6.25 provides:

“Part of the firm’s AML/CTF policy statement should address the circumstances
where reliance may be placed on other firms and how the firm will assess whether
the other firm satisfies the definition of third party in Regulation 17(2) (see
paragraph 5.6.6).”

JMLSG Paragraph 5.7.1 provides:

“Firms must conduct ongoing monitoring of the business relationship with their
customers. Ongoing monitoring of a business relationship includes:

➢ Scrutiny of transactions undertaken throughout the course of the

relationship (including, where necessary, the source of funds) to ensure
that the transactions are consistent with the firm’s knowledge of the
customer, his business and risk profile;

➢ Ensuring that the documents, data or information held by the firm are

kept up to date.”

3.23
JMLSG Paragraph 5.7.2 provides:

“Monitoring customer activity helps identify unusual activity. If unusual activities
cannot be rationally explained, they may involve money laundering or terrorist
financing. Monitoring customer activity and transactions that take place throughout
a relationship helps firms know their customers, assist them to assess risk and
provides greater assurance that the firm is not being used for the purposes of
financial crime.”

3.24
JMLSG Paragraph 5.7.3 provides:

“The essentials of any system of monitoring are that:

➢ it flags up transactions and/or activities for further examination;

➢ these reports are reviewed promptly by the right person(s); and

➢ appropriate action is taken on the findings of any further examination.

3.25
JMLSG Paragraph 5.7.4 provides:

“Monitoring can be either:

➢ in real time, in that transactions and/or activities can be reviewed as

they take place or are about to take place, or

➢ after the event, through some independent review of the transactions

and/or activities that a customer has undertaken

and in either case, unusual transactions or activities will be flagged for
further examination.”

3.26
JMLSG Paragraph 5.7.7 provides:

“In designing monitoring arrangements, it is important that appropriate account be
taken of the frequency, volume and size of transactions with customers, in the
context of the assessed customer and product risk.”

3.27
JMLSG Paragraph 5.7.8 provides:

“Monitoring is not a mechanical process and does not necessarily require

sophisticated electronic systems. The scope and complexity of the process will be

influenced by the firm’s business activities, and whether the firm is large or small.

The key elements of any system are having up-to-date customer information, on

the basis of which it will be possible to spot the unusual, and asking pertinent

questions to elicit the reasons for unusual transactions or activities in order to judge

whether they may represent something suspicious.”

JMLSG Part II – Wholesale Markets (dated 19 November 2014)

3.28
JMLSG Part 2 Paragraph 18.14 provides:

“OTC and exchange-based trading can also present very different money
laundering risk profiles. Exchanges that are regulated in equivalent jurisdictions,
are transparent and have a central counterparty to clear trades, can largely be seen
as carrying a lower generic money laundering risk. OTC business may, generally,
be less well regulated and it is not possible to make the same generalisations
concerning the money laundering risk as with exchange-traded products. For
example, trades that are executed as OTC but then are centrally cleared, have a
different risk profile to trades that are executed and settled OTC. Hence, when
dealing in the OTC markets firms will need to take a more considered risk-based
approach and undertake more detailed risk-based assessment.”

3.29
JMLSG Part 2 Paragraph 18.21 provides:

“Firms may also wish to carry out due diligence in respect of any introducing
brokers who introduce new customers or other intermediaries and consider whether
there are any red flags in relation to corruption risks.”

Employer Created 401(k) Plans

A 401(k) is a qualified profit sharing plan that allows employees to contribute a portion of

their wages to individual retirement accounts. Employers can also contribute to employees’

accounts. Any money that is contributed to a 401(k) below the annual contribution limit is

not subject to income tax in the year the money is earned, but then is taxable at

retirement. For example, if John Doe earns $100,000 in 2018, he is allowed to contribute

$18,500, which is the 2018 limit, to his 401(k) plan. If he contributes the full amount that

he is allowed, then although he earned $100,000, his taxable income for income tax

purposes would be $81,500. Then, he would pay income tax upon any money that he

withdraws from his 401(k) at retirement. If he withdraws any money prior to age 59 1/2,

he would be subject to various penalties and taxes.

Contribution to a 401(k) plan must not exceed certain limits described in the Internal

Revenue Code. The limits apply to the total amount of employer contributions, employee

elective deferrals and forfeitures credits to the participant’s account during the year. The

contribution limits apply to the aggregate of all retirement plans in which the employee

participates. The contribution limits have been increased over time. Below is a chart of

the contribution limits:

Employer
Contribution
Limit

Catch Up
Contribution
(only for
individuals Age
50+)

1999
$10,000
$20,000
$30,000
0

2000
$10,500
$19,500
$30,000
0

2001
$10,500
$24,500
$35,000
0

2014
$17,500
$34,500
$52,000
$5,500

2015
$18,000
$35,000
$53,000
$6,000

If an individual was aged 30 in 1999, the absolute maximum that he could have

contributed including the maximum employer contributions would be $746,000.

Minimum Age Requirements

In the United States, the general minimum age limit for employment is 14. Because of

this, an individual may make contributions into 401(k) plans from this age if the terms of

the plan allow it. The federal government does not legally require employers to include

employees in their 401(k) plans until they are at least 21 years of age. If you are at least

21 and have been working for your employer for at least one year, your employer must

allow you to participate in the company’s 401(k) plan. As a result, some employers’ plans

will not allow individuals to invest until they are at least 18 or 21 depending upon the

terms of the plan.

A one-participant 401(k) plan are sometimes called a solo 401(k). This plan covers a self-
employed business owner, and their spouse, who has no employees. These plans have the
same rules and requirements as other 401(k) plans, but the self-employed individual
wears two hats, the employer and the employee.

ANNEX D1: Ganymede Trade 1

Chronology of the trading

Date and Time
Event: Sale of shares by Ganymede on 30 June 2014

Before 1:12 pm

Phone call to TJM member of staff on his mobile phone rather than
via landline from a Solo Group representative advising that TJM
would receive emails from a new group of clients. He was instructed
to seek liquidity from Ganymede on this occasion.

1:12 pm to 1:20 pm

TJM received emails from each of Clients D, E and F requesting
liquidity in German stock A, specifically a total of 2,753,043 shares.
Client F did not specify a price, however both Clients D and E
specifically requested to buy the stock at EUR 160.12.

1:22 pm to 1:26 pm
TJM requested liquidity from Ganymede per the above instructions.

2:15 pm
Ganymede agreed to sell the above shares to each of Clients D, E
and F at EUR 160.12 with T+2 settlement.

By 2:42 pm
TJM confirmed the trades with each counterparty and forwarded
these to SCP as clearer for approval.

3:24 pm
SCP provided approval as clearer to each ‘sell’ trades from Ganymede
to Clients D, E and F.

Time
Event: Purchase of shares by Ganymede on 30 June 2014

2:32 pm

Ganymede informed TJM that they now wished to buy back up to
2,753,043 shares with T+2 settlement and would be willing to pay up
to EUR 160.98.

2:39 pm
TJM requested liquidity from Clients D, E and F.

2:42 pm

Client D replied that it would be “willing” to sell the shares it had just
bought but at EUR 160.98 only, adding “let me know if that will work
for you”.

2:48 pm
Client F replied that it would be able to sell the shares it had just
bought “at that price”.

2:49 pm
Client E replied that it could sell the shares it had just bought “at that
level […] if that helps????”

By 2:51 pm
TJM confirmed the trades with each counterparty and forwarded
these to SCP as clearer for approval.

4:12 pm
SCP provided approval as clearer to each ‘buy’ trades for Ganymede
from Clients D, E and F.

Background to the onboarding of Clients D, E and F

On 16 June 2014, Clients D, E and F sent requests to TJM to be onboarded for brokerage

services, two of which the Solo Group advised was an “urgent onboarding”.

TJM represented that it received:

a) Client D’s KYC pack on 16 June 2014, sent its onboarding pack on 17 June

2014 which was signed and returned on the same day. Client D appears to

have been onboarded on 17 June 2014 following receipt of a give-up

agreement.

b) Client E’s KYC pack on 16 June 2014, sent its onboarding pack on 17 June

2014 but did not identify any record of a returned signed onboarding pack.

Client E appears to have been onboarded on 19 June 2014 following receipt

of a give-up agreement.

c) Client F’s KYC pack on 20 June 2014 but had sent its onboarding pack on

17 June 2014 which was signed and returned on the same day. Client F

appears to have been onboarded on 20 June 2014 following receipt of a

give-up agreement.

The KYC documentation and the completed Onboarding Questionnaires that TJM received

for Clients D, E and F suggest:

a) Client D was incorporated in the BVI on 5 June 2014 with a single UBO

(who was a previous Solo Group employee). It had an annual income of £3

million, total assets of £1.5 million, a value of £1.75 million and its source

of funds is derived from “Savings derived from past salary and bonuses”.

b) Client E was incorporated in the Cayman Islands on 18 February 2014 with

a single UBO.

c) Client F was incorporated in the BVI on 3 June 2014 with a single UBO. It

had an annual income of £2.5 million, total assets of £1.6 million, a value

of £2.2 million and its source of funds is derived from “Accrued Salary and

Bonuses over 15 years of professional career”.

TJM executed a buy and sell order for each of Clients D, E and F on 30 June 2014 in the

same German stock A. The aggregate value of the buy and sell order was approximately

EUR 440.8 million and EUR 443.2 million respectively. This is further detailed in the

‘Ganymede Trades’ section.

ANNEX D2: Ganymede Trade 2

Chronology of the trading

Time
Event: Sale of shares by Ganymede on 23 October 2014

Before 12:15 pm
TJM received a call from a Solo Group representative, on his mobile
phone, asking him to seek liquidity from Ganymede.

12:15 pm to 12:28
pm

TJM received emails from each of Clients G, H and I requesting
liquidity in the German stock, specifically a total of 965,995 shares.
None specify a price at which they are willing to buy.

12:32 pm to 12:35
pm
TJM requested liquidity from Ganymede per the above instructions.

12:50 pm
Ganymede confirmed that “I will come back to you and let you know
if I can offer anything”.

13:11 pm

Ganymede confirmed that it could provide liquidity, adding that “I
can show you more as well”. Ganymede also asked if TJM has “a
price in mind”.

13:17 pm

TJM replied to each of Clients G, H and I stating that sufficient
liquidity had been found, but without specifying that more than
requested was available. TJM requested from each of Clients G, H
and I that they provide a limit price.

13:29 pm
Client I replied stating “147.05”. Client I increased its order from
250,000 shares to 387,794 shares, unprompted by TJM.

13:31 pm
Client H replied, independently requesting a price of “€147.05”.

13:36 pm
Client G replied, independently stating that “I can pay up tp [sic]
EUR147.05”.

13:37 pm

TJM responded to Ganymede with the limit price of EUR 147.05 and
additionally requested further liquidity pursuant to Client I’s amended
order.

13:41 pm

Ganymede responded to TJM stating “I am happy with the below
price and size. Done for T+2. I may be able to show you more at the
same price if you require.”

This was the second time Ganymede suggested more liquidity was
available.

13:43 pm

Client H emailed TJM, unprompted and before TJM had relayed
Ganymede’s ability to sell more, to request an increased order from
300,000 shares to 352,273 shares.

This was the second client to make a timely request for more shares,
again unprompted by TJM.

13:44 pm

TJM replied to Ganymede to confirm it would revert if it received “any
more enquiries” for the stock. The timing of this email appears to
confirm that Client H’s request for more was unprompted.

13:47 pm
TJM emailed Ganymede to request further liquidity pursuant to Client
H’s amended order.

13:49 pm

Ganymede replied to confirm “Yes, that is fine. Happy with the
increased size.”

In total Ganymede agreed to sell 1,156,062 shares in the German
stock, worth €169,998,917.1, on a T+2 basis.

By 14:08 pm
TJM confirmed the trades with each counterparty, and forwarded
these to SCP as clearer for approval.

15:44 pm
SCP provided approval as clearer to each of the ‘sell’ trades from
Ganymede to Clients G, H and I.

Time
Event: Purchase of shares by Ganymede on 23 October 2014

14:41 pm

Ganymede emailed TJM stating “We are worried about the exposure
on the trade now, can you please let me know if we can BUY back:
1,156,062 shares” of the German stock.

Ganymede added that it is “happy to go upto [sic] a price of EUR
149.06”, implying a consideration of €172,322,601.72.

14:50 pm
TJM emailed Clients G, H and I stating it is “looking to BUY
1,156,062” of the German stock at EUR 149.06.

14:55 pm to 14:59
pm

Clients G, H and I each replied to TJM to confirm they would be
willing to sell the shares they had just bought, at EUR 149.06.

By 15:02 pm
TJM confirmed the trades with each counterparty and forwarded
these to SCP as clearer for approval.

15:44 pm
SCP provided approval as clearer to each of the ‘buy’ trades for
Ganymede, from Clients G, H and I.

Background to the onboarding of Clients G, H and I

On 29 January 2014, Clients G, H and I sent requests to TJM to be onboarded for brokerage

services.

TJM represented that it received:

a) Client G’s KYC pack on 31 January 2014, sent its onboarding pack on 5

March 2014 which was signed and returned on 18 March 2014. Client G

appears to have been onboarded on 26 March 2014 following receipt of a

give-up agreement.

b) Client H’s KYC pack on 31 January 2014, sent its onboarding pack on 5

March 2014 which was signed and returned on the same day. Client H

appears to have been onboarded on 26 March 2014 following receipt of a

give-up agreement.

c) Client I’s KYC pack on 31 January 2014, sent its onboarding pack on 5

March 2014 which was signed and returned on 18 March 2014. Client I

appears to have been onboarded on 28 March 2014 following receipt of a

give-up agreement.

The KYC documentation and the completed Onboarding Questionnaires that it received for

Clients G, H and I suggest:

a) Client G was incorporated in the BVI on 16 September 2013 with a single

UBO. It had an annual income of £780,000, total assets of £87,000, a value

of £2.3 million and its source of funds is derived from “Own finances”.

b) Client H was incorporated in the BVI on 20 September 2013 with a single

UBO. It had an annual income of EUR 812,000, total assets of EUR 75,000,

a value of EUR 1.7 million and its source of funds is derived from “savings”.

c) Client H was incorporated in the BVI on 20 September 2013 with a single

UBO. It had an annual income of £2.387 million, total assets of £82,500, a

value of £1.845 million and its source of funds is derived from “Personal

Funds”.

TJM executed a buy and sell order for each of Clients G, H and I on 23 October 2014 trades

in the same German stock A. The aggregate value of the buy and sell order was

approximately EUR 170.0 million and EUR 172.3 million respectively.