In August 2011 the Tribunal upheld the FSA's decision to impose substantial sanctions on the Chief Executive Officer (Michiel Visser) and Chief Finance Officer and compliance officer (Oluwole Fagbulu) of a hedge fund manager (Mercurius Capital Management Ltd). This case is one of the first examples of FSA action against a hedge fund manager, and provides a timely reminder to review systems and controls to ensure that investors are not being misled about the performance of the fund. The case is also further confirmation of the FSA's readiness to take action against FSA approved persons.  

Abusive behaviour  

The Tribunal unanimously concurred with the FSA that Mr Visser and Mr Fagbulu had:

  1. Engaged in deliberate market manipulation to bolster the fund's Net Asset Value (NAV). On three separate occasions, a series of small bids for shares were made on the day of the fund's month-end valuation, well above market price, with the aim of increasing the share price, so as to inflate the fund's valuation. This resulted in substantial increases of the fund's NAV.
  2. Repeatedly disregarded investment restrictions designed to limit the fund's exposure, leaving the fund concentrated in illiquid stocks.
  3. Falsely enhanced the fund’s NAV by causing the fund to enter into transactions which purported to be highly profitable, but were ultimately fictitious.
  4. Repeatedly issued misleading investor communications, and deliberately failed to inform investors twice of the resignation of the fund's prime brokers, the true financial position of the fund, the nature of its assets and that investment restrictions had been repeatedly breached.

The Tribunal concluded that the breaches were deliberate and calculated, and had contributed to the collapse of the fund in January 2008, which had €35 million assets under management. Given the seriousness of the misconduct, it is perhaps surprising that the FSA did not take criminal action against the two individuals under section 397 FSMA for making misleading statements. Whilst this would have required the FSA to prove the misconduct to a higher standard of proof, the message to the market would have been stronger.


The Tribunal upheld Mr Visser's fine of £2 million for breach of Principle 1 of the FSA's Statements of Principle for Approved Persons (which requires approved persons to act with integrity) and for engaging in market abuse. Disregarding the element of penalty attributable to disgorgement of profits,9 this is the largest fine imposed on an individual to date. In the Tribunal's view, this should be "a matter of no great surprise: his conduct is worse than any other seen by this Tribunal". Mr Fagbulu was ordered to pay a fine of £100,000. Both of their approvals were withdrawn preventing them from performing controlled functions, and they were also prohibited from performing any regulated activity.

Is there a risk that the Tribunal will increase a fine?

It is worth noting that it was the RDC which decided on the higher fine - the FSA's enforcement staff had recommended a penalty of £1.7 million. The Tribunal felt the conduct "was so bad that even £2 million is too little". Although it is open to the Tribunal to impose a greater fine than that decided by the RDC, in this case, it declined to do so, expressing concern that those with meritorious cases could be dissuaded from mounting challenges if there is a possibility that the Tribunal will increase the penalty. The Tribunal commented that it would only increase a penalty imposed by the RDC "in the clearest of cases, where it is plain the RDC has misdirected itself". This was not such a case.

In relation to Mr Fagbulu, the FSA enforcement staff had recommended a penalty of £350,000, which the RDC increased to £500,000. The RDC's robust stance in increasing the fines may encourage the settlement of enforcement action before the outcome of the RDC is known. Notwithstanding its comments about the leniency of the higher penalty against Mr Fagbulu, it substantially reduced the penalty to £100,000 on the grounds of financial hardship. This is one of two recent instances where the Tribunal has reduced penalties in market abuse cases (see next item).