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FSA fines Evolution £500,000 and Mr

Christopher Potts £75,000 for market

abuse

FSA (Financial Services Authority) 12 November 2004

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The Financial Services Authority (FSA) has today fined Evolution Beeson Gregory Limited (EBG) £500,000 and Mr Christopher Potts, its head of market making, £75,000 for distortion amounting to market abuse. This resulted from short selling of shares in Room Service Group plc (Room Service) in September and October 2003.

Andrew Procter, Director of Enforcement at the FSA, 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.
“The FSA expects firms and individuals to ensure their business activities do not interfere with the smooth operation of the market or unfairly damage the interests of investors, and the FSA will not hesitate to take action in any instance where this occurs.

“The FSA has now taken action against all three categories of market abuse. Market users should be clear; we will not tolerate conduct that undermines the UK's reputation for maintaining clean, fair and efficient markets."

EBG's Actions

From 25 September to 21 October 2003, EBG, through Mr Potts, implemented a strategy to short sell shares in Room Service, which resulted in EBG short selling 252% of the issued share capital of Room Service. The strategy was undertaken without a reasonable settlement plan in place to ensure delivery of the shares sold, but in anticipation of Room Service issuing new shares following its AGM on 20 October 2003 thereby allowing demand to be met. The anticipated issue of shares failed to take place and Room Service shares were suspended from AIM on 22 October 2003.

EBG's short selling of Room Service shares went beyond a level where it was capable of delivering those shares, resulting in the supply side of the market being distorted and leading to EBG's failure to deliver shares to 250 investors. EBG has cooperated with the FSA throughout the investigation, and has paid out approximately £150,000 to disadvantaged investors.

This is the first occasion where the FSA has taken action against a firm or individual for distorting the market. The FSA has previously taken action in respect of misuse of confidential information and for making false and misleading statements.