Paul "the Plumber" Davidson was planning to use spread bets illegally to facilitate a new share issue in his own company, Oystertec, after the successful flotation of Cyprotex using the same technique, said his former stockbroker Nigel Howe.
Speaking at the Financial Services & Markets Tribunal yesterday, where Mr Davidson is defending himself against allegations of market abuse by the Financial Services Authority, Mr Howe said that his client intended to repeat the illegal exercise in several other share placements, including one in relation to Oystertec.
Mr Davidson founded Oystertec, a piping company, in 1999, and floated the group in 2001. The allegations against him relate to two spread bets linked to Cyprotex, a biotech company which floated on the Alternative Investment Market at the start of 2002.
The bets were hedged by City Index with a "contract for difference" with Dresdner Kleinwort Wasserstein, which in turn hedged its position by buying shares in the initial placement. The FSA alleges Mr Davidson engineered the transaction to ensure the float got away successfully. As the largest shareholder in the business, he was unable to buy any further shares without being forced to mount a takeover bid.
Mr Howe, who worked for Gilbert Elliot, the stockbrokers, was called by the FSA as its first witness yesterday, and was subsequently cross-examined by Mr Davidson, who is representing himself. Mr Davidson claims he was unaware of the spread bets in Cyprotex, arguing that they were carried out by Mr Howe without his knowledge or consent. However, Mr Howe denied the accusation saying: "What you're saying is that I'd play around with £5m of someone else's money to make £30,000. I think not Paul."
Mr Davidson added that contrary to Mr Howe's testimony, others in Gilbert Elliot must also have been aware of the transaction before it took place. "It's like water pouring on you if you're a plumber," he said. "You know there's a bloody leak."
Mr Davidson also claimed he would have been unable to plan the spread bet deal, arguing that he did not understand spread betting well. However, Mr Howe said: "There's eyes and there's wool-pulling here. You had a very full knowledge of spread betting at that stage."
Mr Howe conceded that before the Cyprotex deal, he had done a lot of work for Mr Davidson, and on their fifth or sixth meeting, he received a £50,000 handout from Mr Davidson. Mr Howe defended the payment, saying that he had generated sufficient institutional interest in Oystertec for Mr Davidson by that stage. Mr Davidson denied that the £50,000 was a gift, insisting it was in fact a loan.
In a bizarre twist, Mr Howe admitted that days before the Cyprotex flotation he had a dinner with Mr Davidson, Bob Long, the former Cyprotex director, as well as Ken Roache, the Coronation Street star who plays Ken Barlow. Mr Howe has accepted his fine from the FSA, which was reduced to £50,000 from £300,000. Having admitted his part in the deal, the FSA has closed his case.Reuse content