Big European hedge fund set to cop $1.97m fine

LONDON - Europe's largest hedge fund, GLG, and one of its former senior traders are set to be fined for charges related to market abuse and violating market conduct in their roles in a February 2003 convertible bond issue, a source familiar with the matter said yesterday.

The fines come as Britain's market watchdog, the Financial Services Authority, is more aggressively going after market abuse by hedge funds, such as market distortion and inappropriate use of insider information.

The FSA's regulatory Decisions Committee is set to find Philippe Jabre guilty of market abuse and violating market conduct, according to the source.

GLG will be found responsible in its role as Jabre's employer for not properly monitoring him.

The process, however, is at an early stage, with the participants having received a "decision notice" but not a final notice.

The Financial Times reported that they had been fined £750,000 ($1.97 million) each and that Jabre would be allowed to continue trading.

This is more than double the highest fine the FSA has ever levied against an individual and the first time Europe's most powerful regulator has fined a hedge fund manager.

A source familiar with the matter said the FSA had been considering a heavier fine but decided against it.

GLG may take some comfort from the fact that the FSA usually fines individuals less than the companies they work for.

GLG and the FSA declined to comment. Jabre could not immediately be reached for comment.

The case centred on whether Jabre traded on information given to him by Goldman Sachs on a forthcoming convertible deal by Japan's Sumitomo Mitsui Financial Group.

It is common practice for banks to sound out demand for a security with selected funds, usually under the condition that the funds adhere to confidentiality agreements.

GLG, which has around US$11 billion under management, still faces investigations by French and Spanish regulators for alleged actions relating to three other convertible bond issues.

Hedge fund managers said the FSA fine could damage the reputation of GLG, which was once in talks, according to sources, on selling an equity stake to US investment bank Lehman Brothers.

- REUTERS