FSA bans broker for profiteering from clients

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The Independent Online

UK financial regulators handed out one of their largest ever fines yesterday and "severely reprimanded" a brokerage that pocketed more than $7m (£4.8m) of profits from buying shares in one of its clients' companies at an 80 per cent discount to their market value.

ICE Securities has been forced by the Securities and Futures Authority to pay a £1m fine plus compensation of £3.3m to two directors of Nearmedic, a biomedical research company. And ICE's former chief executive, Christopher Woodgate, has been expelled from the registers of the SFA, which is now part of the Financial Services Authority.

ICE has been penalised so heavily because it "flagrantly flouted" financial regulations by not acting in the best interests of clients, the SFA said.

ICE was hired by Nearmedic in 1995 to organise a share placing. The shares reached $3,460 at the first placing, raising just $1m of the $4m expected, due to adverse market conditions.

Nearmedic chose to have a second fundraising six months later, when shares were placed at $3,900 and were over-subscribed. At this point two Russian directors of the company wanted to sell 500 of their shares and asked ICE if it would purchase the stock at the placing price of $3,900.

ICE, which was acting as the sole stockbroker to Nearmedic, breached financial regulations agreeing to do so without telling Nearmedic that its shares had risen to $18,000 in the two weeks after the second placing.

ICE paid $1.95m to the directors, but almost immediately sold the shares for $9m, netting a profit of more than $7m.

The SFA alighted upon the situation at Nearmedic because it had already questioned Mr Woodgate in connection with the fall from grace of Peter Young. Mr Young, who was a star fund manager at Morgan Grenfell, was found in 1996 to have invested in a range of Continental companies that were viewed to be far more risky than required by his mandate.

ICE, which was set up in 1992 as an eight-man boutique, was hired to value some of Mr Young's portfolio and was questioned by the SFA.

ICE is now under new management. Mr Woodgate contested the Nearmedic recent case at two SFA tribunals.