A Hong Kong hedge fund that built up a large short position in the North Sea energy group Premier Oil has been fined more than £870,000 by the UK regulator for hundreds of disclosure failures over more than two years.
Between February 2017 and July 2019, Asia Research and Capital Management — a $3.7bn hedge fund founded in 2011 by Alp Ercil — built a short position equivalent to 16.85 per cent of the issued share capital in Premier Oil. It amounted to the biggest short in UK history, according to Edison, the investment research group.
On Wednesday, the Financial Conduct Authority said it had fined ARCM £873,118 for failing to make 155 notifications to the regulator and 153 disclosures to the public of its short position in Premier over that period. ARCM had built up its position by July 5 last year but it took 106 trading days before it was disclosed to regulators and the public, the FCA said.
Mark Steward, executive director of enforcement and market oversight at the FCA, said ARCM had “repeatedly breached reporting rules and failed to provide important information to us and to the market”.
“This fine reflects the seriousness of these breaches,” he added.
The hedge fund would have faced a more severe penalty of almost £1.25m but it had agreed to resolve the matter, therefore qualifying for a 30 per cent discount, the regulator said.
ARCM’s fine is the first instance of the UK regulator taking enforcement action for a breach of the 2012 short-selling regulations. Last week, data released under the Freedom of Information Act showed that the FCA had imposed only four fines for any rule breaking in the year to date — a drop of 76 per cent on the same period in 2019. New enforcement cases also fell by that amount in the first three months of the coronavirus lockdown, although the regulator stressed that its scrutiny of financial firms had “continued as normal”.
ARCM declined to comment. However, one person briefed on the fund’s operations said the failure arose from ARCM’s mistaken belief that the short-selling regulations did not apply to derivatives — which is the legal position in the other markets where ARCM predominantly invests.
Regulation experts said the action against ARCM showed the FCA was determined to police market transparency. “This . . . sits alongside the FCA’s previous actions against firms that have failed fully to report trades,” noted Simon Morris, a financial services partner at law firm CMS. “Imposing a substantial fine on an overseas asset manager for a non-intentional and self-reported breach emphasises the FCA’s unforgiving approach towards breaches of market reporting requirements.”
Premier last week agreed a reverse takeover by the private equity-backed North Sea oil producer Chrysaor, which will create the largest London-listed independent oil and gas group. At the start of the year, before that deal was agreed, Premier had been involved in a tense legal tussle with ARCM over a near $4bn refinancing and acquisitions plan to try and secure its future, which was subsequently scrapped.
Mr Ercil ran the Asia operations of the US hedge fund Perry Capital before setting up ARCM, which has held loans in a number of UK independent energy companies, also including Tullow Oil and EnQuest.