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FCA fines fund groups over collusion on IPO pricing

FCA fines fund groups over collusion on IPO pricing

City regulator the Financial Conduct Authority has fined fund groups Hargreave Hale and River and Mercantile for breaches of competition law, accusing them of sharing information ahead of an initial public offering (IPO) and a share placing.

The regulator found that another fund group, Newton, also breached competition law, though it escaped a fine as it reported the conduct of one of its managers, Paul Stephany, to the FCA, triggering the 15-month investigation.

Hargreave Hale has been fined £306,300 and River and Mercantile £108,600, in the first case the FCA has brought under its competition powers.

The FCA did not detail the communications it had examined or the IPOs and share placing it had investigated in its decision, but revelations by Citywire earlier this month shed more light on today's news.

Our story detailed the exchanges between Paul Stephany, the Newton fund manager fined £32,200 this month, with rivals at other firms ahead of the 2015 flotation of online travel agent On The Beach (OTB) and a share placing by real estate company Market Tech the same year, revealed in an employment tribunal ruling.

Having emailed 14 fund managers at 11 rival firms encouarging them to join him in a lower bid ahead of the On The Beach IPO, Stephany contacted Hargreave Hale managers Giles Hargreave, Guy Feld and Eustace Santa Barbara, thanking them 'if you did indeed come in with a lowball bid for OTB'.

'I think we should do more of this - not be bullied by the brokers who say ''this is coming at X price like it or lump it'',' Stephany added.

Philip Rodrigs, the fund manager sacked by River and Mercantile last year for alleged misconduct, also appears to have discussed his valuation of On The Beach with Stephany ahead of the flotation.

In the event, Stephany's attempts to influence rival fund managers were unsuccessful. The FCA said in its final notice against the manager that none of those he contacted changed their order to his suggested price.

Stephany meanwhile used his personal mobile to call Rodrigs on the day Market Tech announced its share placing. The tribunal ruling is unclear on whether Stephany also spoke to Hargreave or Santa Barbara, or both, on the same day.

Hargreave Hale said it believed the FCA had 'made a number of legal and factual errors' in its decision and is 'exploring our options with our legal advisers'. The group can appeal the decision to the competition appeals tribunal within the next two months.

'In particular, Hargreave Hale was simply a recipient of information that was provided on an unsolicited basis by another fund manager and did not alter its own bidding behaviour as a result,' it added.

'We note that none of the individuals representing our organisation has been investigated by the FCA and we remain confident that Hargreave Hale employees conducted themselves professionally and in the best interests of clients.'

James Barham, chief executive of River and Mercantile, said he was 'disappointed' with the decision but 'confident the ongoing investment we have made in our procedures and processes' showed the fund group's commitment to 'the highest standards'.

Hargreave Hale and River and Mercantile's fines were calculated as a percentage of their respective turnovers. The FCA said it used the same criteria in calculating both.

Newton meanwhile escaped a fine under a provision given to those who report an alleged cartel of which regulators are not already aware.

The fund group reported Stephany's conduct to the FCA and Competition and Markets Authority after its own internal investigation into the manager.

Another fund group, Artemis, which was also being investigated by the FCA, was found not to have breached competition law.

Stephany's employment tribunal ruling details exchanges between the manager and Giles Parkinson, then assistant manager on the Artemis Strategic Assets fund, in which the pair discussed their valuations of Card Factory (CARDC) ahead of its 2014 IPO.

Christopher Woolard, FCA executive director of strategy and competition, said the fines demonstrated 'our commitment to taking enforcement action to protect competition'.

'Asset management firms must take care to avoid undermining how prices are properly set for shares in both IPOs and placings. Failure to do so risks them acting illegally.' 

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