Hedge Fund Rapped By Swiss Regulator For Disclosure Irregularities

by Ulrika Lomas, for LawAndTax-News.com, Brussels

11 March 2008

The Swiss Federal Banking Commission (SFBC) has ruled that London-based hedge fund Laxey Partners failed to fulfil its disclosure obligations under Swiss law when building a stake in the Swiss construction company Implenia.

The SFBC ruled on March 7th that Laxey Partners breached Article 20 of the Stock Exchange Act whilst buying a 22.89% stake in Implenia by using contracts for difference with underlying Implenia AG shares, mainly during the first quarter of 2007.

As a result, the SFBC revealed, it was obliged to file a criminal complaint against the London fund with the Swiss Federal Department of Finance.

In a statement issued on March 10th, the SFBC announced that: "Having completed a comprehensive investigation and administrative procedure, the SFBC issued a declaratory ruling stating that Laxey placed Implenia shares with counterparties (parking), thus making sure to be able to redeem the shares at any time through contracts for difference."

"As Laxey retained in this way potential control over the voting rights associated with these shares, the latter must be attributed to Laxey. This strategy corresponds to an indirect share acquisition according to stock exchange legislation, and is therefore subject to disclosure obligations," the SFBC ruled.

Investors such as Laxey are not regulated by the SFBC and, consequently, are not subject to the SFBC’s prudential supervision, meaning that they cannot be prosecuted under supervisory provisions.

However, the SFBC explained that, by issuing a declaratory ruling, it retains authority over its investigations and the procedures resulting from those investigations.

"The SFBC can make a ruling stating that disclosure obligations have been infringed and communicate this ruling to the interested parties, including affected market participants, in order to uphold market transparency and integrity," the Commission added.

The ruling was welcomed by Implenia, which has stated that Laxey coordinated the purchase of several share parcels through a complex network of Swiss and European banks "and thus deliberately and knowingly infringed Swiss notification rules".

"Indirect and clandestine stake-building, as well as indirect ownership of shares is subject to the same disclosure obligations and procedures as the direct acquisition of shares. Laxey deliberately ignored these rules," Implenia commented in a statement.

If found guilty after a criminal investigation, Laxey could be fined up to CHF250 million (USD242 million). In addition, all of Laxey’s voting rights in Implenia shares could be suspended for several years, and the fund may be exposed to investor claims.

Under Swiss law, the SFBC's ruling can be challenged before the Federal Administrative Court and, subsequently, before the Federal Supreme Court.

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