Compliance News - 19 August 2011
CC:ME WEEK ENDED 19 AUGUST 2011
FSA – TRIBUNAL UPHOLDS FSA DECISION TO BAN AND FINE HEDGE FUND CEO AND CFO £2.1 MILLION FOR DECEIVING INVESTORS AND MARKET ABUSE
The Upper Tribunal (Tax and Chancery Chamber) has directed the Financial Services Authority (FSA) to fine Michiel Weiger Visser £2 million and Oluwole Modupe Fagbulu £100,000 and ban them both from performing any role in regulated financial services for breaching Principle 1 of the FSA’s Statements of Principle for Approved Persons and for engaging in market abuse.
The Tribunal determined that Fagbulu’s behaviour merited a fine of £350,000 but reduced the amount payable because this level of fine would cause serious financial hardship. Mr Visser has applied to have the Tribunal’s decision set aside.
Visser was the CEO and Fagbulu CFO and compliance officer of Mercurius Capital Management Limited (Mercurius). Mercurius managed the hedge fund Mercurius International Fund (the Fund) which during the relevant period of July 2006 to January 2008 had approximately 20 investors and €35 million under management. The Fund collapsed and was placed in voluntary liquidation on 11 January 2008. Investors have, so far, recovered nothing.
Visser's investment decisions, in breach of the restrictions under which he was supposed to operate, placed the Fund in a precarious position. Visser and Fagbulu's various deceptions concealed this from investors for over a year and enabled the Fund to raise €8 million of new capital in the three months prior to its collapse.
Visser
During the period Visser deliberately misled investors by various means, including by engaging in market manipulation, to disguise the performance of the Fund and to secure continued and increased investment in the Fund.
In particular Visser intentionally breached key investment restrictions designed to limit the risks to which the Fund was exposed, leaving the Fund concentrated in very few illiquid stocks.
Visser concealed this from investors by actively manipulating the Net Asset Value (NAV) of the Fund by repeatedly engaging in and twice instructing Fagbulu to commit market abuse in one of those illiquid securities held by the Fund, and by causing the Fund to enter into ostensibly highly profitable but ultimately fictitious transactions. He deliberately made or approved communications to investors which reported the manipulated NAV and contained other false information or left out relevant information including the termination of prime brokerage arrangements by two separate prime brokers.
Fagbulu
Fagbulu was not involved in making investment decisions but was responsible for compliance oversight at Mercurius. He deliberately made or approved communications to investors which contained false information and omitted relevant information, and failed to ensure that the Fund complied with its investment restrictions. Fagbulu also assisted Visser in manipulating the NAV of the Fund and committing market abuse and by entering into financing transactions which were detrimental to the Fund.
Source: Government Tribunals
The Financial Services Authority (FSA) has fined Sir Ken Morrison £210,000 for breaching the Disclosure and Transparency Rules (DTR) by failing to disclose his reduced shareholding and voting rights in Wm Morrison Supermarkets Plc (Wm Morrison).
Shortly after his retirement as Chairman of Wm Morrison, the company announced on 28 March 2008 that Sir Ken had a notifiable holding of voting rights of 6.38%. After the announcement on 28 March 2008 there were no further shareholding notifications made concerning Sir Ken’s holdings until 1 March 2011 – just under three years later - despite the fact that he had reduced his holdings during that period to 0.9%.
Between 2009 and 2010 Sir Ken had substantially cut his shareholding reducing his voting rights of over 6% (a holding worth over £450m) to 0.9%. Sir Ken failed to notify Wm Morrison on four separate occasions when his voting rights fell below 6%, 5%, 4% and 3% which he should have done.
While Sir Ken did not financially benefit from these breaches, his failure to notify Wm Morrison of the changes to his shareholding resulted in Wm Morrison not being in a position to update the market in accordance with the DTR rules. This resulted in the market being misled as to the ownership of voting rights in WM Morrison and Sir Ken's shareholding being stated incorrectly in Wm Morrison’s annual report of 31 January 2010.
Source: Financial Services Authority
A chorus of concerned bankers and business people is now warning about the consequences to economic growth of further uncosted regulatory change, warns the British Bankers’ Association. As the Bank of England warns of the volatility of market sentiment – characterised by the Bank’s head of financial stability as a yo-yoing appetite for risk – policy makers need to be acutely aware of the dangers of further increasing the cost of banking at a time when businesses should be building for recovery, said BBA chief executive Angela Knight:
“Policy makers, regulators, banks and other businesses agree that our three priorities should be restoring financial stability, securing economic recovery and ensuring regulatory reform is fit for purpose. But there is growing concern that regulatory reform is outpacing the other priorities, with real effects on economic recovery. The City is not alone in calling for urgent consideration to be given to the costs and consequences of regulatory change in the banking sector. This is not an abstract discussion, and it does not simply affect the banks.
“Whatever the conclusions of the UK’s Independent Commission on Banking, there is general agreement that they will be significantly costly and have an impact on lending. The UK is leading an international regulatory reform programme which has been largely uncosted. Its economic impact has not been assessed. And few countries intend to implement it in full, but are instead selecting the parts they consider are relevant to them. Now is the time, as the eurozone seeks direction, for the UK to show the way in economic recovery. It's the economy first, studies and analyses second, and then more rules third."
Source: British Bankers Association
With the summer holidays in full swing, figures released by the ABI highlight that the cost of falling ill abroad has hit a record high, as travel insurers helped a record number of people needing emergency medical treatment while overseas. Up to £5.3 million is paid out each week.
ABI figures reveal that last year travel insurers:
- Paid out £275 million in meeting the cost of emergency medical treatments for UK travellers who fell ill abroad – or £5.3 million every week. The cost of medical expenses claims has leapt by over 270% in the last six years.
- Dealt with 337,000 claims for overseas emergency medical treatment –almost 6,500 cases a week. This number rose threefold over the last six years.
- The costs of medical treatment accounts for 55% of the total cost of all claims paid by travel insurers, compared to 33% six years ago.
Claims dealt with by insurers include:
- £86,000 to cover the cost of treating a holidaymaker who suffered a massive heart attack and needed to be flown home via air ambulance to the UK.
- £54,000 to treat a holidaymaker who was diagnosed with bipolar disorder while holidaying in the USA and needed to be flown to the UK with a Doctor escort.
- £20,000 to cover the cost of treating a man who had a heart infection and bleeding on the brain. Costs included treatment at two hospitals and an air ambulance back to the UK from Spain.
- £11,000 to treat a holidaymaker who suffered a broken arm after a fall in Spain.
Source: Association of British Insurers
The Council of Mortgage Lenders has concluded that UK economic prospects have deteriorated as a result of weaknesses in some of the major economies and renewed stresses in the eurozone area associated with the sustainability of government finances. As a result, UK interest rates look like staying lower for longer.
Housing market conditions remain subdued, but pretty stable. Seasonal factors continue to provide some support, but underlying house purchase activity may drift lower on the coming months.
Source: Council Mortgage Lenders
The FSA has announced the cancellation of 6 regional TCF workshops, that were due to be held later this year. The events were planned as follow up to previous assessments but have now been called off as the FSA reallocates resources to concentrate on the transition to the new regulatory structure.
The FSA has previously indicated that the move to a new regime will mean less time is spent on the routine supervision of smaller firms.
This does not mean that adherence to the 6 TCF outcomes should be any less of a priority for firms. These should be strongly embedded in any financial services firm.
