A rogue trader brought a renowned City finance hou
A rogue trader brought a renowned City finance house to its knees in an hour and a half’s ‘disastrous’ dealing in the gilt futures market, a court heard
today.
On the fatal day, August 6th last year, debt-ridden Stephen Humphries exceeded his personal limits at Sussex Futures Limited by more than a hundred times –
and more than double the limits of the company itself.
In scenes that mirrored the Barings Bank crisis, 24-year-old lost pnds stlng 750,000, risking ever increasing amounts like a ‘desperate’ gambler.
Within weeks, Sussex Futures, the City’s largest independent brokerage, was in liquidation.
At London’s Southwark Crown Court, Steven Humphries, now 25, admitted a charge of fraudulent trading through his company SPH Futures Ltd on August 6, 1999.
Jailing him for three years and nine months, Judge Denis Levy, QC, said: ‘In the course of an afternoon, on August 6, last year, you ruined not only your
own career but the career of many others.
‘You caused a prosperous company, Sussex Futures Ltd, to go into liquidation, causing losses to the company which trusted you and employed you.
‘
The judge told ashen-faced Humphries: ‘The losses were huge.
‘Having heard the gravity of the offence, the deliberate gambling of other people’s money over a very short period of time, in my mind nothing but an immediate custodial sentence will do.
‘
Sussex Futures was founded and owned by John Sussex who left school to become a junior broker.
Such was his early success, his company was able to utilise 3,000 sq ft of exclusive office space, employ the latest technology and have 70 floor staff and 42
dealer positions.
But for Mr Sussex later sinking pnds stlng 600,000 of his own savings into the doomed company, the financial suffering of staff and traders would have been even greater, the court heard.
Martin Hicks said: ‘On the afternoon of Friday August 6, 1999, during a period of one hour 32 minutes, the company’s hard earned reputation and value was
destroyed at a stroke, and done so by the fraudulent trading activity of one man, Stephen Humphries.
‘As a result of his direct actions, the company suffered a trading liability of three quarters of a million pounds.
‘
He said banks immediately withdrew their facilities and the Financial Futures Association, the industry watchdog, launched an investigation.
Despite staff working ‘day and night’ for several weeks, 20 traders were deprived of their livelihood, Sussex lost revenue and business and went to the
wall.
‘By the following years, the company had ceased trading with losses of pnds stlng 2.
3 million,’ said Mr Hicks.
Ironically only three days earlier the steering committee of the London International Financial Futures Exchange was meeting with a computer
software company to install security measures to prevent a trader exceeding his position – the committee was promised the programme within two weeks.
A further irony was that John Sussex was a ‘leading exponent’ of installing the measures.
Humphries began working under the ‘umbrella’ of Sussex in June that year – claiming to have five years experience and have a personal equity of pnds
stlng 100,000.
Until Christmas 1998 he had worked for another company, Griffin, itself brought down by another trader flouting personal limits – Humphries himself losing money in the ‘collapse.
‘
‘Therefore, he was acutely aware of the dangers of trading beyond his limit,’ said Mr Hicks.
At Sussex, Humphries paid a monthly fee and a commission to his employer, and rented a computer terminal to trade in gilts.
It was on condition he ended the day in a ‘flat position’, and never held more than ten ‘lots’ or contracts.
Mr Hicks said the defendant ‘was not perceived as a risk’ because in the following weeks he traded within his position at a small profit – making money
for himself and therefore Sussex.
He said August was the height of the holiday season, Sussex was short staffed and only one of three supervising clerks was on duty.
Mr Hicks said throughout the morning the defendant carried out a small number of trades but by 1.
24pm had made a loss of more than pnds stlng 11,000,
leaving him with a balance of pnds stlng 6,000 on his deposit of pnds stlng 17,000.
At 1.
30pm London Time, the ‘long awaited’ United States employment figures were released indicating the US economy was in ‘robust health’ and as a result
American interest rates were likely to be raised.
‘If so, the value of fixed interest investments, such as gilts would fall.
.
.
.
and so it proved to be,’ said Mr Hicks.
By 2.
19pm the price had fallen 39 points from 108.
89 to 108.
50.
At that point Humphries held 50 lots, well in excess of his limit and down enough to wipe
out his own capital reserve.
At 3.
30pm a senior officer noticed a 98 lot trade go through Humphries desk – more than any single person was able to trade within the company.
He challenged the defendant who claimed to have a 200 lot holding but was selling out his position.
‘The reality was different, he held 544 lots, now in excess of the company’s limits and he was continuing to acquire more rather than selling out,’ said Mr
Hicks.
The chief executive officer was called.
He stood over Humphries as he made a series of small sales.
‘He was ordered to trade in greater amounts but Humphries replied the market was no sufficiently liquid to do so.
‘
The officer went to summon the company’s most senior broker but they returned to Humphries desk to find he had fled.
Mr Hicks said the defendant had in fact acquired 1129 lots, and the market by then had fallen from 108.
50 to 107.
86.
‘By 4.
30pm, the company had incurred a trading liability of pnds stlng 729,239 (after taking in Humphries personal loss) and was far in excess of its own limits,’ he explained.
‘AT 5.
15pm John Sussex arrived.
The scene that greeted him was one of anger and anxiety.
‘
That night Mr Sussex telephoned his wayward employee.
Humphries apologised but asked about his assets replied: ‘I have got nothing.
.
.
I have got debts
everywhere.
‘
Humphries was arrested on December 12 and said he had ‘made a mistake’.
The defendant, of Percival Road, Feltham, Mddx, pleaded guilty to ‘knowingly carrying on the business of SPH Futures Ltd on the premises of Sussex Futures
Ltd for a fraudulent purpose, namely to trade in gilt futures contracts.
‘
The charge also specifies he traded in excess of his limit, falsely represented he had authority to do so, and did so ‘in a manner prejudicial to the rights
and liabilities’ of Sussex Futures.
Humphries was bankrupted with debts of 80,000 after the Sussex Futures affair.
Simon Ward, defending, said his client, who entered the City as a 19-year-old, never had any fraudulent intent and was not trying to cause anyone any loss.
‘Quite the contrary, he was trying to trade out the position’ in a ‘tragic and very upsetting’ case, Mr Ward said.
‘He in fact lost his head at the roulette table,’ said Mr Ward.
‘The LIFFE is itself like gambling.
‘
But Judge Denis Levy, QC, interjected to ask: ‘But doesn’t a casino itself limit the amount people are allowed to gamble at the roulette table?’
Mr Ward replied: ‘Yes, and that is why Humphries is before the court.
‘
He the defendant had married and fathered two sons, 18 months before his downfall, purchasing a plush family home with a mortgage of pnds stlng 875,000.
But things started to go wrong and Humphries hit a black period in his trading, beginning to lose money.
He threw himself into work but put increasing strain on his marriage.
He took December 1998 off work – only to learn Griffin, the company he used as a
‘clearing house’ had collapsed.
Humphries was later being paid only 43p in the pound on his pnds stlng 50,000 account with the failed company.
Mr Ward said Humphries returned to work but found he had lost touch with the market.
Even worse, the LIFFE itself had changed from the traditional ‘open
pit’ system of dealing to modern computer trading.
‘Instead of face to face trading, everyone was sitting in front of a green flickering screen.
Humphries was no different,’ he said.
But he said the defendant was in considerable debt and borrowing from the bank to fund his trading – at the time no problem because he had a high credit
rating.
Mr Ward said the defendant’s wife left with the children – forcing his client to sell the family home, and to return to live in his mother’s council
house.
Humphries was noticed to change in personality – he became easy to anger and could think of nothing but work.
Joining Sussex futures after again raising funds, borrowing his father’s pnds stlng 23,000 life savings and living on his credit card balance, Humphries
worked everyday for a month – until tragedy struck again.
Hoping for a reconciliation with his wife, she lost their third baby.
He returned to work ‘in no fit state’ days before the fateful Friday.
Mr Ward said Humphries knew like the rest of the market that August 6, 1999, was to be a ‘big day’ and an opportunity to make or lose a fortune.
The barrister said after the vital figures were announced, Humphriesbegan to trade in a bid to make good the losses he suffered that morning.
‘He started to dig a hole for himself like a man losing at the roulette table,’ said Mr Ward.
‘The position got worse and he was numb, trying desperately to rectify the position.
He is now deeply sorry for what he has done.
‘
Mr Ward said but for the tragedy of losing the child, Humphries ‘may not have fallen into the folly of that afternoon.
‘
ends
