By Huw Jones
LONDON, May 6 (Reuters) - Britain's financial watchdog has
imposed its first fine in relation to an international sham
trading scheme, known as "cum-ex", with potentially more to
come, it said on Thursday.
The Financial Conduct Authority fined Sapien Capital Ltd
178,000 pounds ($247,331.00) for "serious financial crime
control failings which led to the risk of facilitating
fraudulent trading and money laundering."
Sapien Capital could not be immediately reached for comment.
The cum-ex scheme involved numerous banks and investors
engineering trades worth billions of euros to make bogus tax
reclaims from phantom dividends.
"This is the first FCA case in relation to cum/ex trading,
dividend arbitrage and withholding tax reclaim schemes. There
are currently a number of ongoing and overlapping
investigations," the watchdog said in a statement.
The dividend schemes typically involved the trading of
company shares rapidly around a syndicate of banks, investors
and hedge funds to suggest numerous owners, each entitled to a
tax rebate. The name "cum-ex" is Latin for "with-without"
illustrating the apparent vanishing of dividend payments.
The trading scheme is also being investigated by authorities
in Germany, Belgium and Britain. Last year, two Britons were
convicted in Germany's biggest fraud trial in at least 75
years.
The FCA said that Sapien failed to have adequate systems and
controls in place between February and November 2015 in relation
to business introduced by offshore based entities collectively
known as the Solo Group.
The Solo trading was characterised by a circular pattern of
extremely high value trades undertaken to avoid the normal need
for payments and delivery of securities in the settlement
process, the FCA said.
"The FCA investigation found no evidence of change of
ownership of the shares traded by the Solo clients, or custody
of the shares and settlement of the trades by the Solo Group,"
the watchdog added.
Sapien executed purported equity trades worth about 2.5
billion pounds in Danish shares, and 3.8 billion pounds in
Belgian shares, the FCA said.
The fine would have been 236,740 pounds if Sapien had not
agreed to resolve all issues and also qualify for a discount on
disgorgement due to financial hardship, the FCA said.
($1 = 0.7197 pounds)
(Reporting by Huw Jones. Editing by Jane Merriman)