The Daily Telegraph reports that Paul Davidson, known as 'the plumber' in City circles, has hit back at UK regulator The Financial Services Authority (FSA) who, he claims, gave him seven hours to reply to 70 pages of 'interview transcripts' in connection with an investigation into a spread bet he made on biotech company Cyprotex in 2002. Davidson is under threat of a fine of £750,000 should he be found guilty of market abuse. The FSA, it appears, had a little more time to get its own ducks in a row - they have been investigating the affair for over a year.
The story goes that, just prior to the February 2002 AIM flotation of biotech company Cyprotex, Davidson, a former pipefitter, placed a £6m spread-bet with City Index on the stock market performance of the company shares. City Index hedged its exposure by entering into a deal with Dresdner Kleinwort Wasserstein (DrKW). DrKW then bought 80% of the available Cyprotex shares, without which the floatation itself would not have gone ahead. Davidson himself owned 35% of Cyprotex at the time of the float. And there is the rub. It is claimed that Davidson would not have been able to unlock any value in the shares he already owned without his spread-bet. The affair is complicated, but the FSA has been busy trying to establish if any of the parties were in any way guilty of market abuse.
Davidson has claimed that, although the spread bet was made in his name, he intended it to be made once the shares had started to trade and not in the primary market. He has always denied wrongdoing. In August this year Davidson finally cashed out, selling his remaining 29.9% stake in Cyprotex for £2.7m. Having said this, overall Davidson is thought to have lost out. Due to the quick collapse in the company shares, the irony is that he is said to have lost around £4m on the spread bet itself.