FSA slaps £750,000 fine on GLG and its former trader

The UK's Financial Services Authority (FSA) hit London-based hedge fund, GLG, and its former senior trader, Philippe Jabre, with a fine of £750,000 each on Wednesday for market abuse.

The decision comes more than two years after the original incident, when Goldman Sachs approached Jabre during its pre-marketing phase of a convertible bond issue for Sumitomo Mitsui Financial Group. A Goldman Sachs employee, John Rustum, passed ‘inside information’ to Jabre, who claims he didn’t realise the information was such, said a party close to the situation. Jabre then used the information to make a profit. "[It was] a complicated call, which led to a misunderstanding. Goldman Sachs has admitted this [to the FSA] in writing," said the source. Rustum no longer works for Goldman Sachs and couldn’t be contacted for comment. A Goldman Sachs spokesman says the dealer does not comment on “regulatory matters”, but an official at the US bank said its staff made it “very clear” to Jabre that he was “an insider”.

The FSA's Regulatory Decisions Committee does not publicise its findings; if, in the next 28 days, either party decides to launch an appeal, then the appeal will be heard publicly. Neither Jabre nor GLG has yet decided whether to launch an appeal and any appeal would need to be co-ordinated between the two parties, the source said. GLG and the FSA both refused to comment publicly on the matter.

According to the person close to the decision, although fined, Jabre was not suspended nor barred from involvement in the financial sector. This was because he was found not to have intended to break FSA rules. His offence was ‘a misunderstanding in hindsight’. But it is "unlikely" that Jabre will stay with GLG.

The ruling represents the first successful case the FSA has brought against a hedge fund for market abuse. Convertible bonds represent a lucrative arbitrage opportunity for hedge funds, which can profit from going long on the bond and short on the issuer's equity. The FSA realises this and is stepping up its monitoring of potential insider trades.

"We receive all the trading information, so we can see any price moves of interest,” said an FSA spokesman “We have now been given more resources, and we are investing in a new IT system to monitor market conduct."

In particular, the spokesman adds: "We are doing some proactive work on pre-marketing of convertible bonds: we are talking to institutions that were involved in recent convertible issues."

However, people close to the decision said it was less than complete victory for the FSA: "It could have reached this decision a year ago, but the enforcement team was convinced it was an issue of integrity and wanted [Jabre's] head - now this is a setback for them," the source said. GLG manages $6.6 billion in assets. Jabre has reputedly amassed a personal wealth of around $200 million.