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FSA fines Winterflood £4m over market abuse

Times Online
The Times
July 18, 2008

FSA fines Winterflood £4m over market abuse

The Financial Services Authority has provisionally fined Winterflood Securities £4 million, the biggest penalty for market abuse imposed on a regulated financial firm, it emerged yesterday.

Winterflood, which is owned by Close Brothers, the investment bank, was fined over share dealings in an AIM-listed company called Fundamental E Investments (FEI) that took place in 2004. Winterflood denied the allegations yesterday and said it had referred the case to the Financial Services and Market Tribunal for a formal ruling.

The authority said: “The FSA alleges that Winterflood failed to have appropriate regard to warning signs and failed to ask questions about the propriety of the third-party trades in FEI executed by Winterflood, and thereby committed market abuse. It is not alleged that Winterflood or its traders deliberately committed market abuse.” The traders concerned, who were not named yesterday, still work at the firm.

Winterflood said that it had already made provisions to cover the fine and that the penalty would not hit its financial results or those of Close.

If the tribunal rules in favour of the fine, it would mark one of the regulator’s biggest financial penalties and the highest against one of the City firms it regulates.

In August 2004, the authority fined Royal Dutch Shell, the Anglo-Dutch oil giant, a total of £17 million for market abuse and breaching listing rules after the oil group overstated the level of its oil reserves.

The Winterflood fine covers trading in FEI during 2004, when it was chaired by Simon Eagle, a former commodities trader who was also chief executive of SP Bell, a regional stockbroker.

The FSA began an investigation into trading in FEI shares after the company’s price tripled over a four-month period. The shares slumped once the investigation was announced by the regulator. Having reached 12p, they fell to 2p.

Winterflood said that it was a market-maker in FEI at the time and executed most of the relevant trades. Mr Eagle resigned as chairman of FEI. SP Bell later fell into administration.

The FSA declined to comment beyond acknowledging that Winterflood had appealed against one of its rulings. Winterflood and Close declined to comment beyond the wording of a statement to the Stock Exchange.

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