Fundamental-E's Ex-Head Eagle Fined $4 Million by U.K. Financial Regulator

Simon Eagle, the former head of Fundamental-E Investments Plc and brokerage SP Bell Ltd., was fined a record 2.8 million pounds ($4 million) by Britain’s financial regulator.

Eagle, 51, was responsible for a share-ramping scheme in 2003 and 2004 that left 9 million pounds of unsettled trades and has already resulted in a 4 million-pound fine for Close Brothers Group Plc’s Winterflood Securities unit last month, the Financial Services Authority said today in a statement. Eagle’s fine was the largest ever for an individual from the FSA.

“Eagle deliberately set out to create a scheme to artificially inflate the price of FEI shares,” said Margaret Cole, the FSA’s enforcement director. “This scheme was rotten throughout and at the core was Simon Eagle. He showed a breathtaking disregard for his clients, for his duty as an approved person and chief executive and for the effect of his scheme on markets.”

The FSA has clamped down on market abuse and its criminal equivalent, insider trading, after criticism from lawmakers that it wasn’t doing enough to stamp out the practices. It is criminally prosecuting 14 individuals in four separate cases, it said yesterday, following the arrest of a man in another case.

Challenge Dropped

Eagle dropped his challenge to the fine last month, the FSA said. Winterflood lost an appeal last month, which resulted in an FSA fine for not spotting signs that Eagle was committing market abuse.

FSA spokesman Joseph Eyre said Eagle represented himself without a lawyer, and that he couldn’t provide contact information.

A number for Eagle wasn’t available on Companies House and the number for SP Bell, which is in liquidation, on the FSA’s register wasn’t connected.

This is the FSA “not only showing its teeth but biting down hard,” said Maxine Cupitt, a lawyer at CMS Cameron McKenna LLP, in an e-mailed statement. “The regulator is offering a timely reminder that it has become a credible deterrent to financial crime.”

Eagle took control of SP Bell in May 2003, which at the time had about 3,000 clients. He also wanted to take control of Fundamental-E as a shell company for technology investments, according to the FSA’s investigative report. To do this, he had to buy out the majority shareholders’ 85 percent stake. He personally bought 10 percent of the shares, which were traded on London’s Alternative Investment Market, and had to find buyers for the remaining 75 percent, the report said.

Rollover Scheme

The original Fundamental-E shareholders sold their shares to Winterflood, which then sold them to clients of Eagle at SP Bell. The FSA found that Eagle had to use a rollover scheme to generate demand in the stock, of which 109,019 trades occurred in May 2003. By August 2003, there had been 35.9 million trades of Fundamental-E shares.

Rollover schemes work by purchasers buying shares on credit, then selling them on before a future settlement date, so long as the price of the shares keeps on rising. London Stock Exchange rules permit a firm to undertake one rollover of one particular trade. Eagle’s scheme was intended to defer payment, “potentially indefinitely,” and to create a false impression of demand in the shares, the FSA said.

Eagle hid from SP Bell clients the fact that he stood to gain control of Fundamental-E, that he would become chairman, and that he would earn 1.2 million pounds in commission from the original shareholders, according to the FSA’s report.

His fine is nearly triple the 967,000 pound penalty levied on Mehmet Sepil, the chief executive officer of Genel Enerji AS, in February for market abuse. Eagle’s fine includes a disgorgement of profits of 1.3 million pounds.

The FSA introduced a new fining system in April that means companies could be fined as much as 20 percent of revenue in a business area where a breach has taken place, and individuals can be fined a minimum of 100,000 pounds for market abuse. The new system applies only to transgressions after April.

To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net

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