FSA fines market trader £2.8m for market abuse
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The Financial Services Authority has fined Simon Eagle £2.8m for deliberate market abuse and banned him from working in financial services.
The fine is the largest given by the FSA to an individual after Eagle was found to be responsible for a prolonged abusive scheme that deliberately set out to ramp up the share price of Fundamental-E Investments for his own benefit.
Eagle agreed to purchase 85 per cent of FEI shares in 2003 from its two principal shareholders. He intended to keep 10 per cent and sell the remaining 75 per cent through SP Bell, an agency-only stockbroker which he purchased and became controller and chief executive. Eagle then introduced a number of clients to the firm, despite knowing that some of the clients had insufficient funds to trade.
Eagle looked to sell FEI shares to its clients, which would raise demand for the stock and push its price up. Eagle instructed SP Bell staff to sell FEI shares to clients, many of whom were unaware that the shares were being bought and sold on their behalf. In order to defer clients having to pay for the shares, many of the trades were rolled over from client to client without being settled. These rollover trades carried out by the market maker, Winterflood, breached London Stock Exchange rules.
Both the trades carried out by SP Bell and the increase of bid/offer spread for FEI shares by Winterflood, at Eagle’s request, resulted in an artificial increase in the share price and an impression of greater demand for the shares, which rose from 2.5p in May 2003 to 11.75p in July 2004. Eagle was able to purchase FEI and acquire 10 per cent of its stock. He was paid of £1.2m commission by FEI’s original shareholders.
The FSA’s fine consists of a disgorgement of £1.3m profit and a £1.5m penalty. Share trading in FEI was suspended in July 2004 with £9m of unsettled trades which both SP Bell and its clients could not meet. The firm has now gone into administration.
FSA director of enforcement Margaret Cole says: “Eagle deliberately set out to create a scheme to artificially inflate the price of FEI shares. He involved others in his activities and exposed individual clients to serious financial debts of over £9m. His conduct breached the LSE’s rules, caused significant disruption to share dealing in FEI shares, and damaged confidence in the AIM market.
“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. He has played procedural games in an attempt to avoid being held accountable for his actions and this tough action shows that we are determined to keep dishonest cheats, like Simon Eagle, out of financial services.”
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