Greenlight Capital, the U.S. hedge fund hit this week by a market abuse scandal, suffered another knock when the Financial Services Authority fined its former compliance officer for his role in the affair.
The FSA said Friday it had fined Alexander Ten Holter, trader and former compliance officer at Greenlight, 130,000 pounds for failing to question and make reasonable enquiries before selling the fund's stake in UK pub company Punch Taverns
This follows a 7.2 million pound fine for Greenlight and its founder David Einhorn for alleged trading abuses, knocking the reputation of a high-profile manager known for public crusades against abuses by public companies.
The regulator also said Friday it had fined Caspar Agnew, a trading desk director at JP Morgan Cazenove
Ten Holter's approach to compliance oversight was wholly inadequate. Serious compliance failures of this nature can have a dramatic effect on the orderliness and integrity of the markets, Tracey McDermott, FSA acting director of enforcement and financial crime, said in the statement.
Greenlight said the FSA's action against Ten Holter was unwarranted.
Alex is a valued member of the Greenlight team and our trader in the UK. We believe that the FSA's action against him is unwarranted. He has our full support.
SECRET BAD THINGS
The FSA says Einhorn learned in a telephone conversation with a broker acting for Punch said that the firm was on the verge of a significant equity fundraising, prompting Einhorn to sell his stake before an expected fall in the shares.
Einhorn says that he did not believe he or the firm had any inside information when he traded the stock.
Ten Holter was made aware Greenlight had spoken to Punch management minutes before its decision to sell, the FSA said.
The Greenlight analyst who gave the sell-order told Ten Holter that Punch management would have told them secret bad things had they signed a confidentiality agreement and the analyst thought that Greenlight had potentially a window of a week before the stock plummets, the statement said.
This should have alerted Ten Holter to the risk Greenlight was trading on inside information, the regulator added.
JP Morgan's Agnew was fined for failing to identify and alert his employer to the possibility the trade was made on the basis of inside information.
Agnew failed to see the risk despite the fact that he had learned there was the possibility of pre-marketing of Punch shares prior to its fundraising announcement, which sent shares in the pubs firm 30 percent lower, and that major shareholders were likely to have inside information through that marketing, the FSA said.
Agnew was instructed by Ten Holter to sell 11.4 million Punch shares between June 9 and 11 2009, constituting 4 percent of the issued share capital and around 68 percent of all trading in the pub company's shares over the period.
The trader thought Greenlight was simply fortunate in the timing of its transaction, the FSA said.
(Reporting by Tommy Wilkes and Sudip Kar-Gupta; Editing by Myles Neligan and Erica Billingham)