Spread bet didn't pass 'smell test'

THE head of the spread betting firm which accepted a controversial £6m gamble on a company's share price said the bet should have been refused because it did not pass the 'smell test'.

Michael Spencer, multi-millionaire head of City Index, said internal controls had been reviewed following the wager on the movement in the price of biotech group Cyprotex.

The bet had been placed by entrepreneur and major shareholder Paul Davidson, known as The Plumber. City Index covered its risk with investment bank Dresdner Kleinwort Wasserstein, which bought nearly £6m of Cyprotex shares in a placing prior to its £27m flotation.

Investors - who were unaware that the shares were held as part of a spread bet - have complained to the Financial Services Authority.

Spencer said: 'If I had been in the office, I wouldn't have taken the bet. Whether or not it was technically within legal boundaries, it does not in my opinion pass the smell test and, if it had been referred to me, would not have been sanctioned. The key issue was whether the bet was being placed in order to avoid disclosure of the shareholding.

'If this had been a normal transaction through the stock market, the person - The Plumber - would have been forced to disclose it. So the question is whether the bet was placed in order to avoid disclosure.'

Spencer said the bet was still open, but Davidson had been forced to put up the full amount of the bet and 'that is unheard of'.

Spencer, who heads £750m financial broker ICAP, said there had been no disciplinary measures against anyone at City Index. He added that CI was prepared to co-operate with any investigation launched by the FSA.