FSA Fines Prudential And Publicly Censures Its CEO

On 27 March 2013, in one of its last acts before being abolished, the Financial Services Authority ("FSA") announced the outcome of enforcement action against Prudential and its Chief Executive Officer, Tidjane Thiam. The proceedings arose from Prudential's attempt in 2010 to acquire AIA Group Limited ("AIA"), a subsidiary of American International Group Inc ("AIG"). In three final notices, the FSA announced:

a financial penalty of £14 million on Prudential plc ("Prudential"), the FTSE 100 listed company, for breach of Listing Principle 6 ("A listed company must deal with the FSA in an open and co-operative manner"); a financial penalty of £16 million on The Prudential Assurance Company Limited ("PAC"), a UK regulated insurance company, for breach of Principle 11 of the FSA's Principles for Businesses ("A firm must deal with its regulators in an open and co-operative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice"); and a public censure of Mr Thiam for being knowingly concerned in PAC's breach of Principle 11. Background

In 2009, AIG began preparations to dispose of AIA by way of an initial public offering or third party sale. Following an approach to Mr Thiam from the CEO of AIG, in early 2010, Prudential commenced due diligence and entered into a confidentiality agreement. At a board meeting on 31 January 2010, the directors of Prudential were briefed on the proposed transaction. It was considered that a key risk to the proposed transaction was a leak and the FSA was one of a number of parties which might be the cause of a leak. Shortly thereafter, Prudential decided that if there was a leak, it would abandon the deal and issue a "no discussions" announcement in order to protect its share price and avoid any chance of a protracted suspension.

Although at this stage there was considerable doubt that the transaction would proceed, the negotiations continued and it was noted at a board meeting on 3 February 2010 that the "AIA IPO was running into difficulties, which gave Prudential a strong negotiating hand".

On 5 February 2010, Mr Thiam and the Prudential chairman met with the CEO of AIG and gave him an "indicative non-binding proposal" which included a preliminary price range of $30-35 billion, a proposed debt and equity financing structure and a timetable. Further discussions between the parties ensued and on 11 February 2010 Mr Thiam reported to the Prudential board on the outcome of a meeting which the Prudential chairman and he had attended with the US Treasury and AIG.

By 12 February 2010 the negotiations had progressed sufficiently for Prudential to submit a revised indicative non-binding proposal to AIG. This revised proposal included a specific price of $35.5 billion. Also on 12 February 2010, Mr Thiam and another director of Prudential and PAC met with the...