Winterflood will fight FSA charges after record fine

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Winterflood is taking the Financial Services Authority to the independent Financial Services and Markets Tribunal, and said it will vigorously contest its allegations.

So too are two individual traders at Winterflood, who are understood to have received notices of fines of £200,000 each.

The case dates back to 2004 and trading in the shares of computer components company Fundamental- e Investments (FEI). At that time, the company was chaired by Simon Eagle, who was also chief executive of nowdefunct stockbroker SP Bell.

According to Winterflood, it handled the majority of trades in Fundamentale shares at that time.

It said today: "The FSA alleges that Winterflood failed to have appropriate regard to warning signs and failed to ask questions about the propriety of the third-party trades in FEI executed by Winterflood, and thereby committed market abuse. It is not alleged that Winterflood or its traders deliberately committed market abuse."

The FSA, under director of enforcement Margaret Cole, confirmed the size of the fine but refused to comment further. The watchdog first announced itwas investigating trading in FEI shares on 15 July 2004, when the price plummeted 32% in two-and-a-half hours before trading was suspended.

Eagle resigned as chairman of FEI that day. His broking firm Bell collapsed into administration shortly afterwards.

It then emerged that the accounts of 75 clients with Bell had been used to purchase £10 million worth of shares in FEI without their permission.

Today FEI has a stock-market value of £450,000, with its shares trading at a twentieth of a penny. But back in 2004, they tripled in value in four months, hittinga peak of almost 12p on 7 May 2004. Within a month, they had lost more than 80% of their value.

Pershing Securities, the UK's largest clearing and settlement business, was left holding a large stake and claimed it had lost at least £10 million.

Today Winterflood said that it had "vigorously contested the FSA's allegations and, after due careful consideration and legal advice", had decided to appeal.