The Financial Services Authority, the City's main regulator, yesterday launched an unprecedented investigation into the shareholding structure of Chelsea Village, which earlier this month agreed a bid from a Russian billionaire.
The investigation is likely to examine a series of offshore companies that held shares in the company, which was controlled by 71 year-old Ken Bates until the recent takeover by Roman Abramovich. The FSA's inquiries are expected to focus on the sale of shares last year by a company based in Guernsey called Swan Management.
Stanley Tollman, a former business associate of Mr Bates who is currently on the run over fraud charges in the US, is said to be behind Swan.
Mr Bates bought nearly half of Swan's shares in Chelsea Village to take his shareholding up to 29.5 per cent, just beneath the level at which he would have been forced to make an offer for the whole company. The rest of the Swan shares, however, were apparently sold to five offshore trusts, which each took just under 3 per cent of the company. Had any of these offshore trusts held more than a 3 per cent stake in the group, this would have had to have been disclosed to the stock market. Each of these trusts sold out to Mr Abramovich at the same time as Mr Bates sold his holding.
The FSA will seek to find out the ultimate owner of these five trusts - Catstone Limited, Cervantes Investments Limited, Kalbarri Investments Limited, Ecspress Limited and Yellowpark Limited. The regulator will also examine the ownership of the other offshore companies that sold out to the Russian businessman.
Mr Bates, the chairman of Chelsea Village, the company that owns Chelsea Football Club, was able to deliver a 50.1 per cent stake to Mr Abramovich on accepting the bid. However, he had only ever declared a stake of 29.5 per cent in Chelsea Village, which has been listed on London's Alternative Investment Market since 1996. The rest of the shares, which immediately gave Mr Abramovich control of Chelsea, came from eight mysterious offshore trusts.
The FSA, working with the Takeover Panel, said it was looking at the shareholding structure of Chelsea Village prior to the acceptance of the bid from Mr Abramovich. A separate FSA investigation into dealings in Chelsea shares immediately before the bid was announced at the beginning of this month.
The inquiry revealed yesterday "follows the receipt of information from a number of sources suggesting that the publicly disclosed shareholdings of certain parties may have been inaccurate," an FSA statement said. The FSA said it was "concerned that as a consequence the market may have been misled as to the true ownership of Chelsea Village plc". Those found guilty of "market abuse" face unlimited fines and prosecution. It is highly unusual for the FSA to announce it is conducting an inquiry. The regulator said it did so in this case "in view of the widespread public interest in Chelsea Village plc". It added that its inquiry will not affect the takeover by Mr Abramovich.
The regulator said: "The FSA attaches great importance to the timely and accurate disclosure of information to ensure that markets operate in an efficient, orderly and clean manner."
It was a condition of making a £150m offer for the football club that the Chelsea board deliver over 50 per cent of the shares in the company to Mr Abramovich from the outset. As well as Mr Bates' 50 million shares held through Mayflower Securities, a company registered in the British Virgin Islands, representing 29.5 per cent of Chelsea, the company was also to deliver to him 35 million other shares. That gave Mr Abramovich control of Chelsea from day one of the bid, on 1 July, regardless of whether other shareholders accepted the offer.
Mr Bates, who is poised to walk away with £17m from the takeover deal, was yesterday quoted as saying: "The FSA made inquiries over a year ago and raised no objections or questions at that time, nor have they since. I believe that they are running a wild goose chase."
Mr Bates has never been totally comfortable in the public company environment and Chelsea Village has rarely used its equity to raise much-needed funds. Attempts to normalise its boardroom structure soon after its flotation came unstuck when Mr Bates fell out with Peter Middleton, the former Lloyd's of London insurance market chief, who had been appointed to the board as a non-executive director. Mr Middleton resigned within weeks of taking his place on the board.