Tullett fined £15m in trading scandal
FUND manager Terry Smith has been left red-faced after the brokerage firm he used to head was slapped with a £15.4m fine.
Tullett Prebon, now a part of TP Icap, was found by the Financial Conduct Authority (FCA) to have ineffective controls around broker conduct in its rates division between 2008 and 2010.
This, combined with a culture of lavish entertainment, allowed improper trading to take place.
At one point, a Tullett Prebon broker claimed more than £15,000 from the company to pay for a luxury holiday to the US with his friend, a trader at a client bank.
Tullett Prebon ended up paying for the ten-day trip to Las Vegas and California, during which time the broker racked up bills from dinners in expensive bars and restaurants, and hired two top-end sports cars as amusement.
His managers allowed him to expense the trip because he persuaded his trader friend to complete a deal at above the market price, in order to cover a trading loss which Tullett Prebon’s overseas office had incurred due to its own error.
The broker told a senior manager at Tullett Prebon that he had agreed a deal at a set price with a trader to cover the firm’s losses.
But in exchange, he said to the manager: ‘You guys… pay for all the hotels, meals etcetera in LA, San Fran and Vegas.’
Rather than condemning this behaviour, the senior manager said: ‘It’s f ***** g great news but I don’t want to know about it either.’
Smith, now a successful fund manager at his firm Fundsmith, formed Tullett Prebon when his business Collins Stewart acquired Tullett Liberty and then Prebon Group. He was chief executive of the firm from the time it combined in 2004 until 2014.
Tullett Prebon is an inter-dealer broker, meaning it negotiates deals between investment banks and other big financial institutions.
Its rates division carried out ‘namepassing’ broking, where the broker negotiates deals between parties at mutually acceptable terms and then passes their names to each other to conclude the transaction.
The FCA found the division had ineffective controls which allowed brokers to complete wash trades – where there is no actual change in who owns the asset, and the trade has no purpose other than to mislead the market or enrich the broker.
Tullett Prebon brokers were paid bonuses depending on the amount of brokerage they brought in, and this could exceed their salaries by several times.
The FCA criticised senior managers at Tullett Prebon for turning a blind eye, and for encouraging the culture of lavish entertainment to build relationships with traders.
Most of the £15.4m fine was a punishment for the poor trading practice, although £4.9m was slapped on because Tullett Prebon initially failed to give the FCA voice recordings which it requested to aid with its investigation.
Nicolas Breteau, chief executive TP Icap, said: ‘We are pleased to put this historical matter behind us. None of the individuals involved in the relevant broking activities remain with our firm, which has long since taken the opportunity to significantly enhance its systems and controls to comply with regulatory expectations.’
Smith declined to comment.