U.K. Regulator Pays Paul Davidson 725,000 Pounds in Legal Costs
January 23, 2007admin No Comments »The U.K.’s Financial Services Authority paid 725,000 pounds ($1.4 million) to Paul Davidson, the first time the market regulator has been forced to pay legal costs after losing a case.
The FSA paid the money in a “full and final settlement” of its market abuse case against Davidson, FSA spokesman Joseph Eyre said in a telephone interview today. “The matter is now closed.”
The settlement ends more than three years of legal wrangling. The FSA had sought to fine Davidson a record 750,000 pounds, claiming he illegally manipulated the shares of Cyprotex Plc using a 5 million-pound spread bet. The Financial Services and Markets Tribunal threw the case out on May 16 for lack of evidence. It ordered the regulator to pay costs in October.
“This has been a difficult case for the FSA, and a hard fought one from the beginning,” Ian Mason, a former FSA lawyer now working for London law firm Barlow Lyde & Gilbert, said in a telephone interview. “I’m sure lessons will be learned from the case, but will it deter them from bringing difficult cases in future? Probably not,” he said.
Davidson, who uses the nickname “the Plumber’” because he used to fit pipes, couldn’t be reached on his mobile telephone today. In a telephone interview in October he said the tribunal’s decision to award him costs was “a resounding victory.”
“They picked on the wrong person,” he said.
Davidson, who represented himself during the appeal, had estimated his legal costs at 2 million pounds.
Market Abuse
The FSA alleged Davidson abused the market in 2002 by placing a spread bet with the aim of triggering events that would ensure the success of a share offering in a company Davidson owned.
The wager that led to the market abuse allegations was made with spread-betting company City Index on Cyprotex, just before it went public on the Alternative Investment Market in February 2002. Davidson owned 35 percent of Cyprotex, which screens compounds for drug companies.
Because it was such a large bet, City Index hedged itself by buying derivatives from Dresdner Kleinwort Wasserstein. Dresdner in turn hedged itself by subscribing to the Cyprotex offering. This was part of Davidson’s plan to prevent the sale from being undersubscribed, the FSA alleged.
Spread betting allows investors to wager on both up and down share movements without the tax and disclosure rules involved in share ownership. A derivative is a financial obligation whose value is derived from interest rates, the outcome of specific events, or the price of underlying assets such as debt. Companies and investors use them to hedge against unexpected price changes.
Join the discussion