Spread-beting frenzy grows

The controversy raging in the City of London over spread-betting, in which punters gamble on how the stock market will perform, has claimed a major victim.

Nigel Howe, a broker known as The Spaniard, has been suspended over a £6 million bet. His suspension will last until his employers, traditional stockbroking firm Gilbert Eliott, know the results of an internal inquiry.

They will want to find out exactly what Mr Howe knew about the £6 million spread-bet that preceded a £27 million company floatation.

The bet was placed last month with financial spread-betting company City Index by Paul Davidson, a self-made millionaire and a former pipe fitter known as The Plumber.

In a newspaper interview today, Mr Howe himself described the deal as "exhilarating" and said he had done nothing wrong and had merely used a loophole in the City's rules, concerning placing a bet before a company is officially listed on the stock market.

He said: "I have no regrets for what's happened. I feel sorry for my colleagues at Gilbert Eliott. They are fielding the flak about this loophole. This situation has put them in a very difficult position.

"I accept that if I had informed Gilbert Eliott, they are forces of the establishment and would not have sanctioned looking at this." He added that most of the fuss was because the City had not been aware of the loophole.

Mr Howe, who is one of Mr Davidson's closest associates, launched his spread-betting website, SpaniardSays.com, a couple of years ago in the presence of scantily-clad models.

The £6million bet was based on Mr Davidson's prediction that the share price of drug-testing company Cyprotex would rise after the company was floated on Aim, the small companies stock market.

Mr Howe was the broker for Cyprotex and Mr Davidson is the major shareholder. The probe by Gilbert Eliott will focus on whether Mr Howe knew that the bet had prompted Dresdner Kleinwort Wasserstein, an investment bank, to buy £5.16 million worth of shares in Cyprotex, an amount equivalent to 80 per cent of the total shares placed with investors.

The purchase is thought to have been on behalf of City Index and meant that the betting company would recoup at least some of the cash it stood to lose if the bet was successful. But the effect of the purchase was to force up the share price effectively winning the bet for Mr Davidson. Investors have now called in the Financial Services Authority, the City watchdog, to investigate the transaction. Mr Davidson insists he had consulted his lawyers about it and that it is irregular, but not illegal.

The Cyprotex case highlights the true extent of spread-betting in the City - analysts have put the number of accounts in operation at around 40,000. They are increasingly-popular because they offer a wide range of bets, anything from whether a share will go up or down, how the FTSE index will fare in the next few weeks, or what the yen will do against the dollar. And the punter does not have to pay tax or commission on their winnings. Despite the risks involved in spread-betting, colourful characters with names such as The Spaniard, Compo, The Commander, and Lil the Lush wager sums most people do not earn in a year.

Evil Knievil is the betting name of accountant Simon Cawkwell, 55. Operating from his South Kensington-home, he identifies firms whose shares he thinks are overvalued, then bets the price will fall. He reckons to earn "a thick six-figure sum" every year, although he has had his share of upsets. His nickname comes from one of his best-known exploits, when he spotted the weaknesses in Robert Maxwell's firms, bet on their share price dropping, and wrote a report to send round the City the next day. Mr Cawkwell credited his co-author with the penname Evil Knievil. The plan worked to the tune of £250,000, and the nickname stuck.

The Plumber, however, says he's had his fill of spread-betting. Hackney-born Mr Davidson, who left school at 15 and has an estimated £150 million fortune, said he would now be getting his kicks from his Ferrari collection and flutters on the horses, and Manchester United. "I'm not doing it any more," said Mr Davidson, who lives in a £4 million manor house in the Cheshire village of Prestbury with wife Karen and two children. "Once I get rid of my position on this one, that's the end. I don't need all this publicity and grief.

He said he only took up spreadbetting a few months ago when he opened an account with City Index. He said: "I placed my bet on Cyprotex on my boat in Marbella. It's a marvellous company. When I found it, it was like walking into the Microsoft garage when they first started.

"I didn't want the firm to go public and was prepared to put £6 million into it. But they wanted to go public so I thought I would bet that £6 million on their shares going up. As it turned out, I lost £2 million on Tuesday but I got it back on Wednesday. The bet is open until June so it could go up or down."

Dentist Sarab Singh, 36, has been spread-betting for three years. At his west London practice, he trades between appointments, a pager alerting him to market movements. In one gamble, he made £90,000 when a biotech firm's shares doubled in value.

City & Business