LONDON- 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) ((email@example.com; +44 207 542 3326; Reuters Messaging: firstname.lastname@example.org))