Winterflood Securities, the City’s largest small and mid cap stockbroker, is challenging a £4m fine from the Financial Services Authority for market abuse.
It is the biggest fine ever imposed on a City firm for market abuse. Winterflood, which has filed an appeal with the independent Financial Services and Markets Tribunal, said it would vigorously defend allegations that stem from its trading in Aim-listed media company Fundamental E Investments during 2004.
Winterflood was a market maker in Fundamental at the time and executed the majority of the trades in that company.
In a statement Winterflood said: “The FSA allege that Winterflood failed to have appropriate regard to warning signs and failed to ask questions about the propriety of the third party trades in (Fundamental) executed by Winterflood, and thereby committed market abuse. It is not alleged that Winterflood or its traders deliberately committed market abuse.”
It added that it would fully cover the costs of the fine and the appeal and it is not expected to have any negative impact on the financial results of either Winterflood or Close Brothers.
The FSA launched its investigation into Fundamental in July 2004 after the company’s share price tripled in four months. After the FSA probe was announced the company’s share price collapsed from 12p to 2p.
Fundamental chairman Simon Eagle resigned just before the FSA announced its investigation. Eagle was also the chief executive of now defunct regional broker SP Bell.
The FSA investigated the company in relation to accounts of 75 private clients that were allegedly used to trade shares with out their permission and that the accounts were used to buy and sell shares in Fundamental.
Clearing house Pershing Securities was left holding a large stake and claimed it had lost at least £10m.