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Short sellers spit the dummy

We all knew the hedge fund industry wouldn’t accept the new short selling rules without a fight and some are now threatening to sue the FSA for millions of pounds in losses.

Many are furious with the regulator, claiming it has acted beyond its powers and caused widespread destruction.

According to reports in The Sunday Telegraph a group of the largest hedge funds are planning to take legal action, saying the FSA caused “widespread capital destruction”.

But Reynolds Porter Chamberlain partner Jonathan Davies says the FSA has statutory indemnity for damages.

He says: “You can’t sue the FSA for losses, but that doesn’t prevent a challenge on the use of its powers. Some hedge funds are known for being litigious so it wouldn’t surprise me.”

Others are busy trying to skirt the system by identifying technical loopholes in the new regulation, although the FSA says it will be watching any such attempts with interest.

The FSA announced last Thursday that the active creation or increase in net short positions in listed financial companies would be banned from midnight.

The ban will last until January 16, but will be reviewed next month.

The ban contributed to the biggest ever one-day rise in the FTSE100, which closed just under 9 per cent up on Friday. The jump added more than £100bn to its value.

Most advisers contacted by Money Marketing have been supportive of the short-term ban due to the current extreme conditions faced by the market.

But Bloomsbury Financial Planning partner Jason Butler has warned that the FSA’s intervention will prolong a necessary purging of the markets.

He says: “You will always get the true answer through the markets in the long run and I don’t think the FSA was right to impose these restrictions. It will just prolong the day of reckoning. This kind of meddling by the FSA does distort the market when what we need to see is a cleansing of the market.”

In the midst of all the chaos two people have been charged with 17 counts of insider dealing at the City of Westminster Magistrates Court.

Neel Akash Uberoi and Matthew Francis Uberoi were charged with having inside information relating to a proposed takeover of Neutec Pharma Plc and subsequently acquiring thousands of shares.

They were charged with having inside information relating to a proposed takeover of Birse Group Plc, and acquiring 50,000 shares.

They were also charged with having inside information relating to impending expansion and partnerships of Gulf Keystone Petroleum Limited prior to acquiring thousands of shares.

The Magistrates Court declined jurisdiction and held that the case was suitable for trial on indictment before the Crown Court.

Proceedings were adjourned until October 22 when a plea and case management hearing will be heard at Southwark Crown Court.

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