UK broker banned and fined for commission kickbacks
UK regulator the Financial Services Authority (FSA) has fined Fabio Massimo De Biase, a former cash equities broker, Â£252,239 for acting without integrity after he paid a hedge fund to guarantee order flow. The FSA has also banned De Biase from working in the financial services industry on the grounds that he is not a fit and proper person.
De Biase was a cash equities broker working at brokerage TFS Derivatives , a subsidiary of interdealer broker Compagnie FinanciÃ¨re Tradition. As part of his remuneration, De Biase was paid a proportion of the commission revenue he generated from winning broking business. Between January 2008 and September 2009, he paid Â£131,000 in kickbacks to Anjam Ahmad, a hedge fund trader at AKO Capital, in return for Ahmad giving broking business to De Biase.
The FSA reports that on 20 occasions in 2008 and 2009 Ahmad and De Biase agreed 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 split between them. The standard commission rate was 5 basis points, but commission paid averaged 46bps across the transactions in question. This represented an overcharge to AKO of $739,000 (Â£467,797).
The amount of net commission retained by De Biase under this arrangement was Â£198,000. The FSA has required De Biase to pay pack this sum as well as imposing an additional penalty. Over the course of the scheme De Biase also paid Ahmad Â£131,000. This was the subject of a previous FSA Final Notice.
Margaret Cole, managing director of enforcement and financial crime at the FSA, said, "De Biase exploited the trust of his employer and his client. 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 Â£500,000, 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 Â£77,484 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 Â£54,239.
In a Final Notice on 22 June 2010 Ahmad was required to pay the disgorgement of his profits, which amounted to Â£131,000, for his role in this misconduct. Separately, he was also sentenced to 10 months imprisonment, suspended for two years, 300 hours of unpaid work in the community and fined Â£50,000 for insider dealing.