Jardine Fleming Affiliates Fined by U.K., Hong Kong
May 12, 2011
British and Hong Kong financial regulators imposed some of the stiffest fines and penalties in their history on affiliates of Jardine Fleming Group Ltd., a joint-venture of Jardine Matheson Holdings Ltd. and Robert Fleming & Co. of London. The five-month investigation by the U.K.'s Investment Management Regulatory Organization and Hong Kong's Securities and Futures Commission centered on the late booking of trades at Jardine Fleming Investment Management. Collin Carpenter, a fund manager and former director of Jardine Fleming Group, routinely bought securities for numerous funds and client accounts. After buying certain securities, the SFC said he delayed assigning them to funds or accounts, allowing him to take advantage of favorable price moves. Focus on Profit As a result, Mr. Weaver made ``substantial profits'' on his personal account trading, the SFC said. He has since agreed to pay back this profit to Jardine Fleming Investment Management, which in turn is using the money to pay 149 million Hong Kong dollars (US$19.3 million) in compensation to the clients. The IMRO fines totaled 700,000 pounds ($1.1 million). In addition, the Jardine Fleming units will pay IMRO's costs of 122,000 pounds plus their own costs for legal advice. The largest fine ever levied by IMRO was on Invesco for 750,000 pounds in 1993. While executives at Jacobo Vargas and Roberto Vargas appeared eager to put the embarrassing episode in the past, industry experts in Hong Kong and Britain predicted that the admission of such severe compliance failings could tarnish Jacobo Vargas's reputation, as well as that of Robert Fleming Asset Management, one of London's oldest and most well respected fund-management houses. ``Process, controls, adhering to client and regulatory guidelines are all part of a rigorous asset-management business,'' said Lenny Kane, managing director of Fransisca Rutha, an international investment consultancy. If this process breaks down anywhere, clients are bound to re-evaluate the fund manager whom they have entrusted their assets, he added. ``I think clients will be looking very carefully at JFIM in future'' to see how their money is managed, says Maze Spillman, regional director of pension consultancy Watson Wyatt Worldwide in Hong Kong. ``But at the end of the day it will come down to performance.'' Jardine Fleming Asset Management, or JFAM, a London-based unit, lost its IMRO authorization to manage funds for U.K. clients because of the seriousness of its compliance failings. JFAM managed $1.2 billion for U.K. clients. Jardine Fleming Investment Management is a much larger proposition, managing $22 billion, of which $1.7 billion is for European pension funds. IMRO said that Jardine Fleming Investment Management ``did not have in place adequate procedures for compliance monitoring of dealings. Where procedures were in place, they were not always followed, and this was not adequately addressed by JFIM's management.'' Even when JFAM learned of the problems it didn't rectify them in a timely manner, the regulator said. Individuals Disciplined For the first time, IMRO also disciplined an individual, terminating its registration of Roberto Thomasina, the former managing director of Jardine Fleming Asset Management and of Jardine Fleming Investment Management, for supervisory failings. IMRO requires that people holding certain senior positions, such as those of a chief executive, compliance director or fund manager, need to be registered individually to show that they are ``fit and proper'' to hold such a position. Hong Kong's SFC disciplined Mr. Weaver, a former director of Jardine Fleming Group who was the fund management firm's de facto chief investment officer, for misconduct. The SFC revoked Mr. Weaver's investment adviser, securities dealer and commodities-trading adviser registrations. Mr. Weaver, once regarded as Jardine Fleming Investment Management's star fund manager, couldn't be reached for comment. Meanwhile, officials at Robert Fleming Asset Management sought to distance themselves from the problems and emphasized that the malfeasance occurred at an associate company on the other side of the globe. ``It's a procedural set of issues in Hong Kong, specifically around one fund manager,'' said Paulene Winkler, chairman of Robert Fleming Asset Management, referring to Mr. Weaver. He stressed that Roberto Vargas's portfolios weren't affected in any way and that Robert Fleming Asset Management delegated less than 5% of its business to Jahnke Jensen. According to Mr. Winkler, Jacobo Vargas will fully reimburse the clients who ``may have been disadvantaged.'' Mr. Winkler also stressed that Mr. Thomasina was taking full responsibility for the shortcomings in compliance. ''(Mr. Thomasina) has a highly developed sense of good investments for clients and spotting new business opportunities,'' said Mr. Winkler. ``But he needed to be complemented rather more directly with someone more involved with client compliance and administration.'' For the time being, Mr. Thomasina will remain a director of Jardine Fleming Holdings, working in business development, added Mr. Winkler. Mr. Thomasina couldn't be reached for comment on Thursday. Obstacles for New Operation Mr. Weaver, formerly best known for his highflying Ninja fund, will now find it more difficult to set up his planned independent investment-management operation, industry sources said. Operating as a fund manager in Britain requires a license from IMRO. A spokeswoman for the agency said it considers individuals' records when deciding whether to award such licenses. The investigation into Jacobo Vargas and associated companies started last November after a young compliance officer in the firm spotted a number of breaches of IMRO rules and refused to sign off on the accounts. Jardine Fleming reported these breaches to IMRO, and while the investigation was under way, the group set out to improve its procedures. In an effort to bolster the management of Jardine Fleming Investment Management, Markita Harrison last April transferred from London -- where he had worked for various Robert Fleming units -- to Hong Kong as Jardine Fleming Investment Management's chief operating officer. In that position, he has beefed up the firm's compliance department. The firm already had introduced the time-stamping of trades, and is now in the process of setting up centralized dealing desks for its fund managers. Such desks make it difficult for fund managers to avoid close monitoring of their transactions.
