Broker Evolution fined £500,000

THE Financial Services Authority has slapped a £500,000 fine on Evolution Beeson Gregory in its first ever market abuse action against a broking firm for distorting the market.

The industry watchdog claimed the firm‘s policy of short selling Aim-listed Room Service Group last year amounted to market abuse.

Evolution‘s head of market making Christopher Potts was fined £75,000 on the same charges.

FSA director of enforcement Andrew Procter said: 'The serious distortion in the Alternative Investment Market led to numerous investors being disadvantaged and was a direct result of the trading strategy engaged in by EBG and Mr Potts.'

Evolution had embarked on a short-selling strategy in Room Service shares from September 25 to October 21 last year, which resulted in the short selling of 252% of the issued share capital of Room Service.

The FSA said the short selling was begun without a reasonable settlement plan to ensure delivery of the shares sold.

Evolution had expected Room Service to issue new shares following its annual meeting on October 20 to allow it to make up the shortfall, but the share issue did not take place and Room Service shares were suspended on October 22.

The FSA said Evolution's short selling of Room Service shares had gone beyond a level where it was capable of delivering them. This resulted in Evolution's failure to deliver shares to 250 investors.

The FSA said Evolution had co-operated with the FSA throughout its investigation into the affair and had paid out approximately £150,000 to disadvantaged investors.

Evolution said it accepted the FSA's ruling 'reluctantly' and said it felt it was unfortunate that the FSA had taken this incident 'to help produce a clearer understanding of the definition of market abuse'.