[A-List] Financial regulatory crisis: spread betting

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Watchdog investigates tycoon who bet on his own shares price
Concern over the millionaire businessman who profited from a spread bet
on his own investment
By Steve Boggan
The Independent, 20 March 2002

One of his professional advisers is known as "the Spaniard" and he goes
by the name of "the Plumber", but Paul Davidson and his associates are
neither wrestlers nor gangsters; they are devotees of spread betting.

Yesterday, Mr Davidson, a millionaire former pipefitter, was at the
centre of a City inquiry after it emerged that he placed a huge bet on
the share price of a firm in which he holds a 35 per cent stake before
it was floated on the stock market.

City regulators are looking into the deal in which Mr Davidson, 47, bet
that the share price of a biotechnology firm, Cyprotex, would increase
after its flotation on 14 February. City Index, the betting company that
accepted the wager, bought a large amount of shares in Cyprotex to hedge
against its losses, inevitably pushing up the price and increasing the
value of Mr Davidson's 31,750,000 shares.

Last night, after making an initial win  rumoured to be in the region of
£6m  on his continuing bet, Mr Davidson appeared to be heading for
losses when the share price, which had peaked at 35p, fell from 29p to
just 22p before closing at 25p.

The fact that one man and a spread-betting concern could have such an
effect on the market performance of a company has caused regulators
considerable angst but Mr Davidson insisted he had not done wrong.

"The share price has not been manipulated," he said. "It's not market
abuse. I've made no secret of any of this." He described the deal as
"pioneering stuff", irregular but not illegal. "It just goes to show
that you can do any deal you want in the City," he said.

Regulators are understood to be increasingly concerned at punters using
spread betting as a way of gambling on the stock market without having
to buy shares or disclose activities to directors or shareholders.

Spread betting allows gamblers to bet on anything from movements on the
FTSE 100 to the number of corners a football team will take in a match.
In the case of share-price bets, a punter may gamble a certain amount
per penny movement in share price. Each time the price moves up 1p, the
punter wins that amount, but each time it drops 1p, an equivalent sum is
lost. Winnings are tax free.

Mr Davidson is not a director of Manchester-based Cyprotex but, because
of his investment, is regarded as a principal of the company. Cyprotex
issued a statement saying it raised £6.5m from the flotation but had
no idea that a part of that, from shares bought on behalf of City Index,
had anything to do with spread betting. Cyprotex was valued at £27m
when it was floated. Its chief operating officer, John Nicholson, said:
"It is business as usual. We are endeavouring to get on with the
business [of] delivering new customers and fulfilling our commitments."

The flotation was handled by the brokers Gilbert Eliott, one of whose
senior employees, Nigel Howe, is an adviser to Mr Davidson. Mr Howe,
known in the City as "the Spaniard", also runs a spread-betting advice
website called spaniardsays.com. He is on holiday but there is no
suggestion he was involved in the latest deal. The Financial Services
Authority said it was "looking into" the deal and City Index is
preparing to make a statement in the near future.

In a separate case, the FSA is investigating a group of City workers who
allegedly used inside information to place bets on share prices.

Full article at:
http://news.independent.co.uk/business/news/story.jsp?story=276358

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney@xxxxxx