Close Brothers Loses Appeal of $6.2 Million Market Abuse Fine by Regulator
Close Brothers Group Plc, a British investment bank founded in 1878, lost a court challenge over a 4 million-pound ($6.2 million) market-abuse fine levied by the U.K.’s Financial Services Authority.
Close Brothers’ Winterflood Securities unit and two of its brokers were fined because they didn’t spot “warning signs” of a 2004 share-ramping scheme in securities of Fundamental-E Investments Plc, the FSA said. Close Brothers challenged the fine, claiming that because it didn’t intend to distort the price of the shares, it didn’t commit market abuse.
The Court of Appeal in London dismissed the appeal today. Justice Martin Moore-Bick said in the judgment that FSA rules relating to “market abuse of a kind which creates a false impression or distorts the market” aren’t limited to situations when “the transaction was motivated, at least in part, by an intention to achieve either of these results.”
The FSA is clamping down on market abuse, and its criminal equivalent, insider trading, as it fights for its political survival after opposition Conservative lawmakers pledged to abolish it should they win next month’s election. They argue that lax regulation contributed to the worst financial crisis since World War II.
“There is no finding, that Winterflood or its traders deliberately or knowingly committed market abuse,” Close Brothers said in an e-mailed statement. “This financial penalty, together with the costs of the referral, has been fully provided for by Winterflood in prior years.”
Two traders, Stephen Sotiriou and Jason Robins, were fined 200,000 pounds and 50,000 pounds respectively.
Winterflood received the fine for market abuse in 2008 -- a penalty that the FSA had originally set at 7 million pounds, according to court documents.
The unit argued at a hearing last month that the FSA didn’t prove there was an “actuating purpose,” or motive.
“Winterflood allowed highly profitable trades to go ahead despite clear warnings that something was amiss,” Margaret Cole, the FSA’s enforcement director, said in a statement. “The importance of this case is underscored by Winterflood’s determination to challenge our finding of market abuse.”
Winterflood made about 900,000 pounds from trading in Fundamental-E’s shares, its most profitable stock at the time, according to the FSA.
The FSA first said it was launching an investigation into trading of Fundamental-E’s securities in July 2004, a week after the company’s shares were suspended and Fundamental-E Chairman Simon Eagle stepped down. He was also chairman of SP Bell, a stock-broking firm, the FSA said. He bought 10 percent of Fundamental-E’s stock, then tried to get clients of SP Bell to buy 75 percent of the stock, according to the regulator.
Eagle “embarked on a deliberate course of market abuse in relation to FEI through the use of rollovers, delayed rollovers and the manipulation of share prices,” according to the FSA’s investigative report into Winterflood, published today. “Eagle had to generate significant demand in order to achieve the share sale.”
Eagle will challenge an FSA penalty at the tribunal in July, said Joseph Eyre, an FSA spokesman. Eyre said Eagle represented himself in the case and couldn’t provide a phone number for him.
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.