The Financial Conduct Authority has fined a compliance officer and a broker for failing to act with due skill, care and diligence enabling market abuse in October 2010.
David Davis, senior partner and compliance officer of Schweder Miller, was fined £70,258 and Vandena Parikh, a broker at the same firm, was fined £45,673 for their actions in the period leading up to the illegal manipulation of the closing price of Gazprom and Reliance securities by Dubai-based private investor Rameshkumar Goenka in October 2010.
Tariq Carrimjee, director at Somerset Asset Management, has also been fined £89,004 for recklessly assisting Goenka, and banned from performing any role in regulated financial services.
Goenka himself was fined $9,621,240 (around £6m) by the Financial Services Authority on 11 November 2011 for market abuse – the largest fine ever imposed by the FSA on an individual.
Commenting on the fine of Davis and Parikh, director of enforcement and financial crime at the FCA Tracey McDermott, said:
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.
Here are the full details of the crimes and punishments of Davis and Parikh, courtesy of the FCA:
In April 2010 Goenka was introduced to 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 (GDRs) could be raised by placing strategic orders. Parikh explained the impact that the size and timing of various orders might have on the closing price. However, although the matter progressed, an unforeseen announcement about Gazprom caused the price to drop unexpectedly on the intended trading day and the proposed trading was abandoned.
The FCA has concluded that Parikh failed to act with due skill, care and diligence by explaining the process of manipulation to Goenka without recognising the risk that this posed and without proper challenge or enquiry as to his intentions. Further, although Parikh speculated that Goenka had a related structured product she did not discuss this possibility with her compliance officer. The FCA has imposed a penalty of £45,673 on Parikh.
In October 2010 Goenka took the knowledge gained during the Gazprom preparations and used this as the basis for a successful strategy to illegally manipulate the closing price of Reliance and enabled him to avoid a loss of $3.1m on a related structured product. Parikh suspected but did not know that Goenka had an underlying structured product. Parikh informed Davis that she had concerns about the proposed Reliance trading with the result that Davis became involved and monitored the trading.
Although Davis was not aware of Goenka’s desire to manipulate the price nor that he in fact held a linked structured product, he was aware of sufficient information to constitute clear warning signals and failed to take preventative steps before authorising the trades. Furthermore, Davis did not report the trading as suspicious after the event.
The FCA has concluded that Davis failed to act with due skill, care and diligence by failing to challenge the instructions for Reliance and by failing to refuse to accept the orders to trade. Davis held senior management positions at Schweder Miller and was responsible for compliance oversight. The FCA has withdrawn his Significant Influence Functions (SIF) and prohibited him from holding those functions in future. The FCA has imposed a penalty of £70,258.