The plumber prepares to challenge FSA over fine

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The Independent Online

The Financial Services Authority is braced for several weeks of scrutiny into its enforcement process when a case being brought against it by Paul Davidson, the share trader known as the Plumber, opens on Monday.

The Financial Services Authority is braced for several weeks of scrutiny into its enforcement process when a case being brought against it by Paul Davidson, the share trader known as the Plumber, opens on Monday.

Mr Davidson is appealing the findings of an FSA investigation into a complex financial transaction relating to shares in Cyprotex, a biotechnology company Mr Davidson floated. After the FSA's inquiry into Mr Davidson, the regulator issued a decision notice in October last year detailing its reasons for fining him a sum reported to be £750,000, although the FSA has never publicly confirmed the amount. The FSA decided to fine Mr Davidson for market abuse.

However, full details of the case are likely to come out next week when Mr Davidson brings an appeal against the FSA's actions at the Financial Services and Markets Tribunal. The Tribunal has set aside three weeks to hear the arguments, making it one of the longest hearings against the FSA that the regulator has faced.

The Tribunal is independent of the FSA and has the power to overturn FSA decisions or force the regulator to change its findings. It may also uphold FSA decisions.

Mr Davidson is a former pipe fitter, a job that gave him his sobriquet after he emerged as a share trader in the City. The FSA's investigation into Mr Davidson centred on the flotation of Cyprotex. Mr Davidson placed a spread bet with financial bookmakers City Index relating to the performance of the company's shares. To protect its own position City Index bought a contract for difference. This is a form of derivative instrument that gives the holder upside in the underlying shares of a company without the need to physically own the shares. The counterparty to this instrument was Dresdner Kleinwort Wasserstein, which in turn bought shares in Cyprotex, equal to about 80 per cent of the company's equity, to provide DKW with a form of insurance.

The case in front of the Tribunal will determine whether this chain of events was part of a pre-meditated effort by Mr Davidson to support the flotation of Cyprotex, by creating the impression of strong demand in the company's shares, or whether his motives behind the transactions were innocent.

Mr Davidson has become a high profile figure in the City in the past few years having made a fortune from a gadget that revolutionised pipefitting. His pipefitting business, Oystertec, was floated in 2001 and has a market value of £50m.

However, Mr Davidson has since fallen out with the company and the two parties have been fighting a bitter patent dispute that has ended up in court.

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