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LONDON (Reuters) - Ashti Hawrami, oil minister of the semi-autonomous Kurdish region of Iraq, was the recipient of emails from a senior JP Morgan banker that the UK financial regulator this week said constituted market abuse, people familiar with the matter said.
Ian Hannam quit as JPMorgan's global chairman of equity capital markets after the FSA fined him 450,000 pounds ($712,400) for divulging privileged information in two emails in 2008. Hannam, a gruff former special forces soldier, is one of Britain's most successful investment bankers and is appealing against the fine. An independent review is likely to take at least a year to complete.
The Financial Services Authority (FSA) fined Hannam in relation to an email in September 2008 to an unnamed "Mr. A", whom three sources told Reuters was Hawrami.
The email contained information about a potential takeover bid for Hannam's client, Heritage Oil. Mr A is central to the probe, as he could then have advised his organization to buy a stake in Heritage, the FSA said.
Spokesmen for Hannam, JPMorgan, the FSA and Hawrami declined to comment.
In the FSA's notice of its fine and decision this week, it said Hannam said the contents of the email were not sufficiently precise or price-sensitive to constitute inside information, and the information had already been disclosed to Mr A by Tony Buckingham, the chief executive of Heritage Oil.
Heritage declined to comment, but the FSA notice said the information disclosed by Hannam was more specific than that provided to Mr A by Buckingham.
"It is not suggested that any trades were conducted on the basis of the information disclosed by Mr Hannam," the FSA has said.
The FSA also accepted that Hannam was "acting in Heritage's interests when making the disclosures to Mr A" as he tried to find a partner for Heritage to tie up with, or sell assets to, to help fund the development of Heritage's oil find in Kurdistan.
Conservative party member of parliament David Davis, a supporter of Hannam, told Reuters in a telephone interview that the fact the first email was sent to a government minister - whom he declined to name - meant no wrongdoing occurred because the minister could be relied upon to respect the confidentiality of the information contained.
"On the evidence presented, this is an incomprehensible conclusion," Davis said of the FSA fine.
The FSA says these were serious matters and defends its decision to fine Hannam.
Hawrami's department has previously been involved in dealing in shares of Norwegian oil company DNO, which was criticized in an Oslo Stock Exchange (OSE) report in 2009 for not providing enough information regarding the sale to investors.
At around the same time that Hannam sent the emails to Hawrami, the Kurdistan Regional Government (KRG) was involved in purchasing shares in DNO International, which was listed in Norway and operating in Kurdistan.
The identity of the KRG as the purchaser of the shares was revealed in a probe by the OSE, which fined DNO in 2009.
The shares were subsequently sold to Turkey's Genel Enerji, a pre-cursor company to UK-listed Genel Energy, with which Heritage Oil ended up entering a merger agreement in June 2009. That merger collapsed after the FSA launched a probe into suspected insider dealing in Heritage shares by Genel Enerji's Chief Executive Mehmet Sepil. Sepil was later fined for market abuse.
The KRG said neither it nor any of its ministries, officials, employees or advisers benefited directly or indirectly, through DNO or Genel Enerji, from the transaction or subsequent resale of the shares.
There is no evidence that Hawrami used the information he received from Hannam improperly or that it influenced his government's participation in buying DNO shares.
The KRG said at the time that it got involved with the DNO share dealing to help the company raise money so it could continue working in Kurdistan, at a time when the region was struggling to attract investment.
Today, interest in the region has increased dramatically, and industry leaders including Exxon Mobil have agreed contracts.
The FSA notice implies that the KRG was also mulling an investment in Heritage, something that might have assisted its funding needs at the time.
"Mr Hannam made these disclosures at a time when he knew that the recipient of his email might recommend that the organization he represented (Organisation C) should enter into a corporate transaction with Heritage, whereby Organisation C would purchase a stake in Heritage," the FSA said this week.
The probe into Hannam was triggered by the FSA's investigation into Genel, several sources have told Reuters.
Davis said it was Hannam who had alerted the authorities regarding the Sepil case. "He actually blew the whistle on it," Davis said, adding his information came from Hannam, who contributed to his unsuccessful bid to lead the Conservative Party in 2005.
($1 = 0.6317 British pounds)
Reporting by Tom Bergin; Editing by Will Waterman