The Upper Tribunal (Tax and Chancery Chamber) has directed the Financial Services Authority to fine Stefan Chaligné, a Swiss-based hedge fund manager, GBP900,000 plus disgorgement of the financial benefit he obtained of EUR362,950 and Patrick Sejean, a former senior salesman on Cantor Fitzgerald Europe’s (CFE) London-based French desk, GBP650,000.
The FSA did not seek to fine Tidiane Diallo, a former junior trader on the same desk, as it accepted that he was in a position of serious financial hardship. Had this not been the case, it would have sought to fine him GBP100,000. The Tribunal also directed the FSA to ban all three individuals from performing any role in regulated financial services.
Chaligné, a French National who was both the fund manager of, and a shareholder in, the Cayman Islands based “Iviron” hedge fund, deliberately manipulated the market in a total of nine securities traded on a number of different European and North American exchanges. He did so by placing orders, through CFE, which were designed to increase the closing price of the securities, and thereby increase the value of the hedge fund, on two key portfolio valuation dates for the fund.
The practice of manipulating share prices on portfolio valuation dates (month and year ends) is known colloquially as “window-dressing the close”. Having manipulated the price of eight securities on 31 December 2007, Chaligné then also manipulated the price of two securities on 31 January 2008.
The increases in the valuation of the fund enabled Chaligné to present a positive view of the performance of the fund, at a time of difficult market conditions, to current and prospective investors, and thereby present himself as a competent fund manager. The practical effect of his market abuse was to increase the performance and management fees paid to him by the beneficiaries of the hedge fund.
Sejean and Diallo effected and executed Chaligné's orders for the purpose of achieving Chaligné's objective. Diallo was involved on one of the dates. Sejean was involved on both dates and deliberately influenced and involved more junior members of staff, including Diallo, in the misconduct. They both understood the manipulative nature of the orders.
In what it described as “as serious a case of market abuse of its kind as one might conceive", the Tribunal increased the fine to be imposed on Sejean from GBP550,000 to GBP650,000. Sejean made a serious financial hardship application that was heard by the Tribunal on 26 September 2012 and which could result in a reduction of the amount he is required to pay.
Tracey McDermott, director of enforcement and financial crime, says: “Chaligné was an experienced hedge fund manager who engaged in a deliberate scheme of market abuse to benefit his own interests. His scheme involved UK-based traders and impacted several markets across Europe and North America. The significant penalty and ban, along with the Tribunal’s comments, underscore the seriousness of his misconduct.
“Sejean was a willing participant in Chaligné’s scheme. He wholly failed to meet the expectations we have of approved people. Not only did he fail to prevent or report the abuse, he exploited and abused his position of trust and involved more junior traders in his misconduct. He has no place in the financial services industry.
“Diallo’s role was less significant than the other two but, as the Tribunal put it, to be a fit and proper person to be approved the FSA must be able to have confidence that you are ‘…a person who can be trusted, whatever the pressures on [you], to respect the law and the rules of the market.’.
“We welcome the Tribunal’s confirmation that market manipulation is a serious matter and that anything other than a wholly inadvertent, technical breach of the market abuse provisions will almost always lead to a ban.”