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FSA fines and bans broker for taking kickbacks

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The FSA has fined a former cash equities broker GBP252,239 and banned him from working in the financial services industry for “acting without integrity”.

Fabio Massimo De Biase, a former employee of TFS Derivatives Ltd was found by the FSA to have taken kickbacks in return for passing business to Anjam Ahmad, a hedge fund trader formerly with AKO Capital LLP.

As part of De Biase’s remuneration, he was paid a proportion of the commission revenue he generated from winning broking business. Between January 2008 and September 2009 he paid GBP131,000 to Ahmad in return for Ahmad giving broking business to De Biase.

On 20 occasions in 2008 and 2009, Ahmad and De Biase agreed between them that a higher level of commission would be charged to AKO, using enhanced commissions (called ‘declined improvements’). This system was designed to reward exceptionally good performance on the part of the broker, but was used by Ahmad and De Biase to increase the amount of money available to them to split. The standard commission rate was 0.05% or 5bps (basis points), but on these 20 occasions the level of commission averaged 46bps. This represented an overcharge to AKO of USD739,000.

The amount of net commission retained by De Biase under this arrangement was GBP198,000. The FSA has required De Biase to disgorge this sum as well as imposing an additional penalty. Over the course of the scheme De Biase also paid Ahmad GBP131,000. This was the subject of a previous FSA Final Notice.

"De Biase exploited the trust of his employer and his client," says Margaret Cole, FSA managing director of enforcement and financial crime. "This sort of behaviour has no place in the financial services industry. This substantial fine and the ban from working in the financial services industry are significant penalties and should serve as a reminder that such behaviour is woefully short of that expected of approved persons and will not be tolerated."

In determining the appropriate amount to fine De Biase, the FSA took into account his financial circumstances. De Biase’s behaviour merited the disgorgement of profits, plus an additional penalty element of GBP500,000, but because this level of fine would cause De Biase serious financial hardship, the level of additional penalty has been reduced. The additional penalty element was reduced to GBP77,484 on the basis of verified evidence of financial hardship. Because De Biase agreed to settle this case at an early stage he also qualified for a 30% discount on that figure under the FSA’s executive settlement procedures, reducing the additional penalty element to GBP54,239.

"This is a historic case and the first time the FSA has used plea bargaining arrangements," says Neill Blundell, partner and head of fraud group at international law firm Eversheds. "The result of these arrangements is that Mr Ahmad escaped a prison term and helped the FSA take regulatory action against Mr De Biase. Overall, this will be a pleasing result for the FSA even though they were unable to seek a criminal conviction against Mr De Biase. Presumably they lacked the evidence on the criminal standard of proof. They will however take consolation from the fact that he was fined and that he is now banned from working in the financial services industry."

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