Financial Services and Markets Act 2000

Financial Services and Markets Act 2000

2000 CHAPTER 8

Commentary on Sections

Part Xxvii: Offences

Section 397: Misleading statements and practices

700. This section provides for two criminal offences concerning misleading statements and practices.  Persons found guilty of either of these offences may be subject to a maximum of up to 7 years imprisonment or to a fine, or to both.

701. The first, set out in subsections (1) and (2), applies where a person deliberately makes a misleading statement, promise or forecast, or dishonestly conceals facts from someone with the intention of inducing any other person to do or refrain from doing something in relation to an investment.  A possible example of this offence would be someone lying about a company’s financial position at a time when he was seeking to dispose of shares in that company. It is also an offence to make the misleading statement, promise or forecast recklessly and to be reckless as to whether another person was so induced.

702. The second offence, set out in subsection (3), is the creation of a misleading impression about an investment with the intention of inducing another person to do or not do something in relation to that investment.  This covers such things as market manipulation, for example engaging in artificial trades in a particular investment in order to create the impression that there is more interest in the investment than really exists.

703. Subsection (4) provides a defence against the offence in subsection (2) for a person if he can show that a statement, promise or forecast was made in compliance with price stabilising or control of information rules.  Subsection (5) provides three defences against the offence in subsection (3).  The first is that the person concerned reasonably believed that his conduct would not create a misleading impression.  The second defence is where the person is engaged in price stabilisation in circumstances where this is permitted.  The third defence is where the person acted in conformity with the control of information rules under section 147.

704. Subsection (7) provides the offence in subsection (3) is not committed unless the action done takes place in the United Kingdom, or the misleading impression this creates arises in the United Kingdom.

705. Subsections (9) to (12) give the Treasury the power to prescribe those agreements and investments to which this section applies.