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Has Jacob Rees-Mogg been insider dealing?

Updated: Mar 21, 2022

Twitter has added to the ever increasing list of allegations of financial misdemeanours aimed at Jacob Rees-Mogg. All of which, so far, are entirely fabricated. Lots of tax avoidance, moving his firm to Ireland, obtaining Government grants to renovate his mansion, conflicts of interest, and now we have insider dealing.

Surely this one has some truth in it?

Let’s see the allegations –

@rock_fischer In 2018 Rees-Mogg had £44.5m in Sberbank, then 23 days ago he sold it all. Did anyone else, with shares in Russian banks, get the national security briefings on Ukraine before the Prime Minister’s sanctions?– 10K likes, 5K RTs. This was QT’d by @sueperkins for another 20K likes and 5K RTs.

@welshwhippet “Russian bank 'Sberbank' have had their shares halved. Strangely enough, Jacob Rees-Mogg sold his shares in that bank about a month ago making him £44 million. Isn't Rees-Mogg privy to government talks? Did he use that knowledge and sell his share? Isn't that insider trading? – 38K likes, 10K RTs

@shahil95 (Research Analyst) “Jacob Rees-Mogg moved £44million of his money out of a Russian bank only days before he sanctioned it” – 5K likes, 2.5 RTs.

The allegation is insider dealing. So what’s that? From Article 8 of the UK Market Abuse Regulation, insider dealing is:

“where a person possesses inside information and uses that information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates.

It’s a serious crime, and can carry a prison sentence.

So where did all this come from? There was an article in the Telegraph on January 30th by Helen Cahill:

There is no dispute from anyone as to the veracity of the article as far as I know. It was confirmed in this article that Somerset Capital Management (SCM) did indeed have a £44.5million holding in Sberbank in 2018.

Hold on, none of the tweets sharing this information have mentioned SCM. Who are they?

Somerset Capital Management was cofounded by Jacob Rees-Mogg in 2007, but he ceased any involvement in the firm when he joined the Government in 2019, although he remains a partner. SCM is an investment management house specialising in Emerging Markets.

It’s a what? Doing what?

SCM manage investment funds on behalf of clients – either individuals with ISAs. Charities, Trusts, Pensions etc – basically anyone wishing to invest may invest in one of SCMs funds.

Why buy a fund?

Well, because you want to invest, but either don’t have the money/knowledge to invest directly on the stock market. Knowledge is particularly key in Emerging Markets. Emerging Markets are developing economies – core Emerging Markets are Brazil, Russia, India, China and South Africa often referred to as the BRICS. There are many others, Indonesia, Malaysia, Mexico etc. So you may have some vague notion that these economies will grow faster than the UK/EU but without any knowledge of how to invest directly in these markets, or the money to make it worthwhile. So you buy into an Emerging Markets fund, which will have lots of investors, which will be professionally managed, for a small fee, on your behalf. This is where Somerset Capital Management come in.

It will usually have 35/45 securities in each fund. Whilst they specialise in Emerging Markets people may want higher risk funds, or higher dividend funds, and the portfolio will be designed to achieve that.

So it’s not money, it’s shares. The shares don’t belong to Jacob Rees-Mogg, they don’t even belong to Somerset Capital Management, they belong to investors, and are managed on their behalf by SCM.

OK, so it’s not Jacob Rees-Mogg’s shares.

Could it still be insider dealing if Jacob Rees-Mogg encourages someone else to deal? Yes, it absolutely could! There is something called the “encouraging offence”.

A person would be guilty of the encouraging offence of insider dealing if, while in possession of inside information, they encourage another person to deal in securities that are price-affected securities in relation to the information. The offence is complete when the encouragement is given regardless of whether or not the other person acts upon it.

So, if Rees-Mogg was in possession of information that Sberbank was due to be sanctioned and he told SCM to sell the shares, this would still be an insider dealing offence.

Did he? Well let’s tackle some of the timing. Clearly if SCM sold £44.5 million just before a major event was announced, such as Russian banks being sanctioned, and that information couldn’t have been known other than with inside information, Rees-Mogg would have questions to answer. Is that what the article infers? Categorically, no!

According to the 2018 annual report SCM had 4.4million shares of Sberbank, and according to the article in the Telegraph which started these rumours, “Somerset Capital Management started winding down its holding in Sberbank in 2019. It sold its final 361,861 shares between September and November 2021”.

These shares were worth about £3-3.5million between September and November.

SCM had been winding down the position for a couple of years, and we also know there was no plausible way Jacob Rees-Mogg could have known for sure there was about to be sanctions placed on Russian banks back in September/November. He may well have known, as anyone closely watching the situation would have known, that a Russian invasion of Ukraine was possible. The possibility of an invasion was in mainstream news, and any Emerging Markets specialist would be aware - they wouldn't require inside information.

Indeed, in their interim report published at the end of November, Somerset co-Managers Mark Williams and Kumar Pandit wrote, "Political tensions also rose in Russia, where massing of troops on the Ukranian border led to an increase in global concern that an invasion might be imminent. We sold out of our holding in Sberbank in part as this elevated risks of international sanctions against the country, but also because the company had performed well up to that point and had reached our estimate of fair value".

So we know the shares were sold by the end of November, and we know that the possibility of an invasion was part of the reason they were sold, and we can also see that it was public information at the time that an invasion was possible.

But let's just suppose he did have this information, and pretend for a moment that it wasn't in the public domain. Would it be worth his while divulging this information to SCM, bearing in mind it runs the risk of him losing his job, and (worst case scenario) serving a 10 year prison sentence?

Remember these aren’t his shares, these shares belong to investors, and SCM receive a fee for investing them. Clearly we’re not talking about £44.5million any more, we’re talking about the £3million which were left when the last shares were sold. If Rees-Mogg used inside information and it saved the investment fund a £3million loss, what would Rees-Mogg stand to gain?

These are ball-park, rule of thumb figures. On £3million, SCM can expect to receive fees of c£15K. Of that £15K something like £5K would be a profit. Rees-Mogg reportedly has a 10-12% interest in SCM. His potential profit personally would be in the region of £500 to £600.

So, no. There isn’t any evidence at all of any insider dealing offence.

Rees-Mogg fabricated allegation, volume 6.

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