ICE SECURITIES LIMITED FINED #1,000,000; FORMER CHIEF EXECUTIVE EXPELLED

10 Oct 2001 12:00 AM

The Financial Services Authority announced today that ICE Securities Limited (ICE), a stockbroking and corporate finance firm, has been severely reprimanded and fined #1 million by the Securities and Futures Authority (SFA), a subsidiary of the Financial Services Authority, for deliberately failing to act in the best interests of three customers: ICE paid them $3,900 per share for 500 shares which were worth at least $18,000 each. So the customers only received approximately 20% of the amount due to them while the remaining profit was retained by ICE.

Christopher Woodgate, the former chief executive, chairman and majority shareholder of ICE has been expelled from all SFA''s registers. ICE has paid #3.3 million compensation to the customers affected. ICE and Christopher Woodgate are paying SFA''s costs. The fine is the largest that SFA has imposed to date. If ICE had not paid #3.3 million in compensation, the fine would have been #4.3 million.

The case was contested by ICE and Christopher Woodgate before both the SFA Disciplinary and the SFA Disciplinary Appeal Tribunals.

Detail

In 1995 ICE was acting as the only stockbroker for a biomedical research company called Nearmedic, and its three directors. One of the directors was English and based in the UK, the other two directors were Russian scientists based in Moscow.

A first placing of 289 shares for the company in October/November 1995 only raised $1 million (at $3,460 per share) instead of a predicted $4 million due to market conditions. A second placing of 1,081 shares at $3,900 on 16 April 1996, by which time market conditions had improved, was enormously oversubscribed.

In March 1996 the directors of Nearmedic had decided that they wanted to sell 500 of their own shares and ICE had agreed to sell these shares on their behalf. On 30 April 1996 the Russian directors decided that they wanted to sell their shares immediately because they were worried about the political situation in Russia. The UK-based director asked Christopher Woodgate whether ICE would itself purchase the shares at $3,900 - the 16 April placing price. Christopher Woodgate agreed, after discussions with his dealing director, to buy, on ICE''s behalf, the 500 shares at $3900.

During their discussions Mr Woodgate and the dealing director had agreed that they would take the shares from the directors at $3,900 each and offer them to the market at $18,000. 46 minutes later 428 of those shares had been sold at $18,000 each, the remainder was sold for at least that price over the next few days.

Christopher Woodgate did not tell the Nearmedic directors that ICE was intending to sell the shares at $18,000 nor that the price at which the shares had been trading had risen steadily from February 1996, culminating in trades at prices between $16,000 and $19,000 in the preceding week. ICE was the only stockbroker quoting prices for Nearmedic shares during this period. The Nearmedic directors accepted the price of $3,900 because they had not been fully informed.

The Disciplinary Tribunal found that:

* ICE and Christopher Woodgate had deliberately not informed the directors about the prevailing prices and market conditions. This is in breach of the FSA''s Principle 1, high standards of integrity and fair dealing;

* the three directors were not given the best price available, as was their right;

* ICE and Christopher Woodgate had not taken measures to deal with the conflict of interest which arose when they had decided to buy the shares on ICE''s behalf, and the duty they had to give full and fair advice to the directors. This is in breach of the FSA''s Principle 6, conflicts of interest.

ICE is now under new management and Christopher Woodgate no longer has any involvement with the company.

NOTES TO EDITORS

1. Regulated companies are obliged to give customers the best price available in the market when buying or selling securities. In technical terms this is called giving ''best execution''. This is rule 5-39 in the SFA''s rulebook.

2. The FSA Principle 1 states '' A firm should observe high standards of integrity and fair dealing.''

3. The FSA Principle 6 states ''A firm should either avoid any conflict of interest arising or, where conflicts arise, should ensure fair treatment to all its customers by disclosure, internal rules of confidentiality, declining to act, or otherwise. A firm should not unfairly place its interests above those of its customers and, where a properly informed customer would reasonably expect that the firm would place his interests above its own, the firm should live up to that expectation.''

4. The compensation payments negotiated between ICE and the three directors reflect a mixture of cash payments and a transfer of shareholdings that ICE had in Nearmedic''s successor company Primamedic Ltd, to the three directors concerned.

5. The above company is in no way connected to another company, also sometimes known as ICE, whose full name is Intercontinental Exchange. Intercontinental Exchange is a US based firm, not regulated by the FSA or any of its subsidiaries, which owns the International Petroleum Exchange.

6. SFA is a subsidiary of the FSA. SFA is the regulatory organisation established under the Financial Services Act 1986 with responsibility for regulating members of the organised City investment markets, i.e. the stock market, eurobond, financial futures, commodity futures markets and also corporate finance specialists and off-market traders. Around 1,350 firms are regulated by the SFA.

7. The Government announced on 20 May 1997 that it would create a single regulator for all financial markets merging nine regulatory bodies including SFA. On 1 June 1998, the FSA began to supply regulatory services under contract to SFA and the other two Self Regulating Organisations (SROs). In addition, the staff of SFA, IMRO and PIA and the Supervision & Surveillance Division of the Bank of England took up their new posts as employees of the FSA. The SFA is replaced by the Financial Services Authority on 30 November 2001.

The Securities and Futures Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS