The Financial Conduct Authority has fined a compliance officer and a broker a total of around £116,000 for allowing market abuse to take place.
The fines relate to a market abuse case dating back to October 2010, which saw the FSA impose its largest ever individual fine of £6m against private investor Rameshkumar Goenka.
Stockbroker Paul E Schweder Miller & Co senior partner and compliance officer David Davis has been fined £70,258 and has banned from holding a senior position in any financial services firm for failing to act with due skill, care and diligence.
A broker at the same firm, Vandana Parikh, has been fined £45,673 on the same grounds.
The FCA says the pair’s failings allowed Dubai-based investor Goenka to manipulate the closing price of securities traded on the London Stock Exchange.
The regulator is also seeking to ban and fine Somerset Asset Management compliance officer Tariq Carrimjee £89,004 for his role in Goenka’s market manipulation. Carrimjee has referred the matter to the Upper Tribunal.
In April 2010 Goenka was introduced to broker Vandana Parikh to execute trades in Gazprom and Reliance securities in LSE closing auctions.
A series of conference calls took place during which Goenka asked whether the closing price of Gazprom Global Depository Receipts could be raised by placing strategic orders.
Parikh explained the impact the size and timing of various orders might have on the closing price, effectively explaining how prices could be manipulated.
An unforeseen announcement about Gazprom caused the price to drop unexpectedly on the intended trading day and the proposed trading was abandoned.
The FCA says although Parikh speculated that Goenka had a related structured product she did not discuss this possibility with her compliance officer.
In October 2010 Goenka took the knowledge gained during the Gazprom preparations and used this to develop a successful strategy to illegally manipulate the closing price of Reliance, allowing him to avoid a loss of $3.1m on a related structured product.
Parikh informed Davis she had concerns about the proposed Reliance trading and Davis monitored the trading.
The FCA says although Davis was not aware of Goenka’s desire to manipulate the price nor that he held a linked structured product, he missed clear warning signals and failed to take preventative steps before authorising the trades. He also failed to report the trading as suspicious.
FCA director of enforcement and financial crime Tracey McDermott says: “The collective failure of Parikh and Davis to recognise the warning signs and react accordingly meant they unwittingly enabled his manipulation to take place.
“All approved persons have a duty to help the FCA in its fight against market abuse, and must be vigilant in spotting, challenging and reporting market abuse. That did not happen here. Instead, Goenka’s manipulative strategy was allowed to proceed unchallenged. This falls far short of our expectations of approved persons.”