The UK Financial Services Authority (FSA) has fined broker and market maker Winterflood and two of its traders a total of £4.25 million for market abuse after they lost their case in the Court of Appeal.
As a result of the Court of Appeal’s decision, Winterflood will have to pay a £4 million fine while the two traders, Stephen Sotiriou and Jason Robins, will have to pay £200,000 and £50,000 respectively. The court also ordered Winterflood, Sotiriou and Robins to pay the FSA’s appeal costs of £52,000.
In June 2008, the FSA found that Winterflood, the largest market maker on the London Stock Exchange’s AIM market for growth stocks, and its traders played a pivotal role in an illegal share-ramping scheme related to Fundamental-E Investments (FEI), an AIM-listed company. In particular, the FSA said the company misused rollovers (where positions are rolled over from one client to another) and delayed rollovers (where the size and price of the buy and sell legs of the rollover trade are agreed at the outset, but the two legs of the transaction are then executed at different times of day), which it alleged created a distortion in the market for FEI shares and misled the market for about six months in 2004.
The FSA said Winterflood made about £900,000 from trading in FEI shares, its single most profitable stock at the time.
In March 2009, the Financial Services and Markets Tribunal found that the broker and its traders had committed market abuse, but they appealed.
“Winterflood allowed highly profitable trades to go ahead despite clear warnings that something was amiss.
Their actions led to serious losses for investors and damaged market confidence. This was well below the standards expected of a leading market maker which is why they will be paying a substantial fine,” said Margaret Cole, director of enforcement at the FSA, in a statement. “The importance of this case is underscored by Winterflood’s determination to challenge our finding of market abuse.”
She added that the FSA’s eventual victory in the case should “serve as a clear message to other market participants that we are determined to stamp out market abuse and that we will not back down simply because cases are tough and hard fought.”
The FSA has levied a number of fines this year for market abuse. Most recently, on April 16, the regulator fined spread better Sameer Patel and
research analyst Robin Chhabra £180,541 and £95,000 respectively for market abuse.
The Winterflood/Sotiriou/Robins decision takes the total to £10.96 million for the financial year so far.