The tycoon, the watchdog and the high-risk broker

By :- Sharia, On October 11, 2015 in ::-Sports Betting

ON THE one hand is a former jailbird Israeli tech billionaire who made his fortune from the gambling industry — while ensuring appearances in the gossip columns by squiring sundry supermodels around town.

On the other is a financial spread-betting company laid low by revelations that it has failed to comply with money-laundering regulations.

And in the middle sits Britain’s Financial Conduct Authority (FCA), charged with ensuring fair play and good practice in the City.

Last week’s £460m takeover bid by Playtech for Plus500, the online broker that allows investors to bet on currency, commodity and share markets, has every element of a colourful City tale.

The bidder, Playtech, is the creation of Teddy Sagi, who in his younger days went to prison for his part in a financial scandal. He still speaks for more than a third of the company’s shares. And the target, Plus500, saw its share price collapse last month after it disclosed that the FCA had, in effect, frozen the accounts of tens of thousands of customers of the UK part of its operations while it carried out anti-money laundering checks. Many thanks for visiting. Before we carry on I want to to say thank you to for their continued assistance and the support of their regional community. Having a service team like this means a lot to us as we continue to grow our very own blog.

But the saga also highlights the regulation of brokers offering punters the opportunity to make high-risk bets in the financial markets. This is not a pastime for the faint-hearted — or for those who can’t afford to lose. It’s a world where gambling and investment overlap. And this is where the key question arises: just who is — or should be — responsible for protecting investors?

In the UK, about 90 firms offer clients the chance to invest — or gamble — on currency markets or “contracts for difference” (CFDs), which provide a means of speculating on whether the price of a share will go up or down.

These firms must have approval to operate. But fewer than 20 are authorised directly by the FCA. Under European rules, firms that have secured approval elsewhere in the European Economic Area can “passport” into the UK and operate legitimately in this country. Some 73 firms have taken advantage of this “passport” provision to offer services in the UK, 54 of them regulated in Cyprus.

Plus500 got into trouble because part of its business, Plus500UK, is among the few firms that do have direct FCA approval and the watchdog felt its record-keeping about clients was insufficient to prevent the risk of money-laundering.

Now the proposed takeover of Plus500 means the FCA will have to check out the bona fides of the new parent, Playtech. And with Sagi having a substantial voice in Playtech, he, too, will come under the regulator’s gaze.

After the takeover was announced, the Playtech camp correctly pointed out that Playtech already has a business offering CFDs to UK clients: in April, it bought TradeFX, which offers online CFD and options trading.

Playtech’s advisers went on to insist that the company had already jumped through the regulatory hoops “by way of an FCA licence”. And “as a major investor and founder, Teddy Sagi successfully passed full probity test to get this after a full FCA review”.

In fact, Playtech itself does not have an FCA licence. But the company insists that one of its offshoots, Epsilon, does.

With Plus500’s British- regulated offshoot Plus500UK changing hands, the FCA will have to give the deal its blessing if the UK licence is to be preserved. It will want to check out Playtech’s suitability as a parent. The company insists it is confident of securing approval.

Will Playtech face problems? Not necessarily. Just because it is principally involved in the gambling industry rather than finance and just because Sagi has a criminal record need not bar the company from keeping the FCA licence for Plus500UK.

The FCA checks are rigorous, covering areas ranging from market abuse and capital requirements to reporting and adequacy of IT systems. Some CFD firms that have gone to the trouble of securing approval from the FCA feel twitchy that the passporting provision allows firms from Cyprus and elsewhere to operate in the UK on an equal basis.

An insider at one FCA- regulated firm who declined to be named said: “Without doubt, the FCA holds people to a higher standard.” Ed Eger, chief executive of Canada-based firm Oanda which specialises in foreign exchange dealing, said: “My suspicion is that the regulatory burden and regulatory standards in markets such as the US and UK are higher than offshore.”

In other words, for some, thorough regulation is a price worth paying — but not every online broking firm likes paying that price.

To say that Teddy Sagi has a colourful background is an understatement. At the age of just 22, an early foray into business ended with him being jailed after admitting to deceit, bribery and involvement in market manipulation. Seven others were arrested. Sagi was sentenced to nine months and released after five.

As the tech boom took hold in the late 1990s, he realised that the internet was the way to make serious money. Online gambling offered particular riches.

He founded Playtech in 1999. It grew to become the world’s largest online software gambling company and is the foundation of his current fortune, now reckoned by Forbes to be about $3.5bn (£2.3bn).

According to Israeli reports, in 1999 he also looked at other ways of making money from the internet. Papers lodged for a court case claimed he put money, directly or otherwise, into a company, Unlimited9, involved in building pornography websites. Playtech insists “Mr Sagi was never an investor in Unlimited9” and that the court case collapsed.

Meanwhile, Playtech went from strength to strength. In 2006, it secured a London listing, and was valued at £550m. It is now worth £2.4bn. Gambling groups using its software include Betfair, Bet365, William Hill and Paddy Power. Playtech developed the systems behind fixed-odds betting terminals, the machines loved by some gamblers but reviled by certain campaigners.

Sagi does not sit on the company’s board, but one of his trusts owns more than a third of Playtech’s shares. And the company has shown a striking willingness to do deals with Sagi’s private businesses.

These “related-party transactions”, where the listed company has bought operations from Sagi himself, have come thick and fast, raising eyebrows among some Playtech investors.

Following flotation, Playtech paid $250m for online gaming assets from Sagi, an operation it then injected into a venture with William Hill. In 2011, Playtech bought a Sagi software firm, PT Turnkey Services, and in 2012 struck a licensing deal with Skywind, also controlled by the Israeli billionaire.

It was a further transaction, in April this year, that brought Playtech into the arena of financial trading. The company agreed to pay an initial €208m (£151m), with the prospect of a further €250m to come, for a 91% stake in TradeFX — an online broker of CFDs and options.

Yet again, the business Playtech was buying came from Sagi: it was controlled by one of his trusts.

What is undeniable is that Sagi has become a big player on the London stock market. Last year he floated Market Tech, the owner of London’s Camden Market as well as SafeCharge, an online payments group and Crossrider, which handles digital advertising.

And his colourful lifestyle has ensured that his name appears beyond the business pages of newspapers.

In 2009, he popped up in gossip columns when he was photographed arm-in-arm with Israeli supermodel Bar Refaeli, who had recently split up with Hollywood star Leonardo DiCaprio.

Now Sagi is with a former Miss Israel, Yael Nizri. According to those in his entourage, he has given up the playboy bachelor lifestyle of his younger days. He has settled down to a sober life of fatherhood and nurturing the established businesses that have made him rich.

The bid for Plus500 is not yet a done deal. It is just conceivable that a rival firm might muscle in and try to top Playtech’s offer.

Whatever the outcome, life will never be the same for Plus500. And whatever the outcome, punters looking to place bets on the financial markets will face a stark reminder: if things go awry with the firm handling my business, just which country’s regulator should I blame?

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