These webpages contain the legal paperwork for the above case, including the Exchange’s own Evidence file for their application to strike out the case.

You will find that the evidence contain shocking disclosures that the Exchange rigged a compensation valuation and then lied about this to the victims of the market abuse.

IN THE Central London COUNTY COURT

BETWEEN :

NIGEL PETER WILLIAM SMITH

Claimant

-and-

LONDON STOCK EXCHANGE PLC

Defendant

PARTICULARS OF CLAIM

• This is a claim issued by Nigel Peter William Smith (“The Claimant”) against the London Stock Exchange plc (“The Defendant”), operating inter alia, a Stock Exchange with electronic trading services. The Alternative Investment Market (“AIM”) is part of the Defendant’s business operations.

• The Defendant is a Regulated Investment Exchange (“RIE”) pursuant to the Financial Services and Markets Act 2000 (“FSMA”). In its capacity as an RIE, the Defendant is under an obligation to comply with the rules and duties set out in Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001 (“RRIECHR”). The Defendant is a public authority for the purposes of section 6(3) of the Human Rights Act 1998.

• In October 2003, Evolution Securities, then known as Evolution Beeson Gregory (“EBG”) partook in a trading strategy that was grossly abusive. They distorted the market for shares in Room Service Group plc (“the Company”), an AIM Listed company, now know as Azure Holdings plc (“Azure”), when the Company announced that they were planning a corporate action involving a debt for equity conversion.

• EBG sold more than 252% of the entire equity of the company with no visible plan to complete settlement of their trades by the contracted delivery dates. Other market makers, Shore Capital Stockbrokers Limited and Winterflood Securities Limited, also participated by exacerbating the extent of the short selling and matching EBG’s distorted prices. Approximately 250 retail investors were disadvantaged by the short selling, but all the Room Service shareholders were disadvantaged by the price manipulation.

• After an investigation by the Financial Services Authority (“FSA”), a final notice was issued on 12 November 2004 whereby EBG were fined Ј500,000 and their chief market maker, Christopher Potts Ј75,000 respectively. A copy of the FSA press release and Final Notice is enclosed as Exhibit 1A and 1B respectively.

• The market for Room Service shares had become utterly disorderly due to the abusive actions of the market makers and the negligence of the Defendant. It was suspended on 22 October 2003 for other reasons.

• Using the powers of the FSA, the Defendant arranged the Settlement Offer to the victims of the short selling only, to offer cash payment in lieu of physical share delivery from the market makers. The Offer did not take account of the victims of the price distortion due to the market abuse.

• The Defendant arranged a valuation to determine the price of the Offer. They stated that the valuer was an independent third party. They stated that the Offer price was an independent valuation and it was free from influence by the Defendant or the market makers. They stated that the Offer and acceptance of the Offer was without prejudice to any legal claims that the investors may have and that the Offer would yield “only a cash payment in lieu of the entitlement to receive Azure shares”. When the Offer was extended, the Defendant clarified that this Offer constituted full and complete satisfaction of the transaction concerned.

• When the Offer attracted too few acceptances for the Defendant to restore the orderly market the Defendant gave permission for the sale of dilution shares. These shares were created after the abuse and of lesser value. They were used to clear any outstanding settlement obligations remaining by the market abusers for higher value pre-dilution shares and so that the Defendant could restore the share to the market.

THE CLAIM

• The claim is in several parts:

• Deception and Deceit
• That the Defendant did in 2003 and 2004 dishonestly deceive the Claimant and others concerning the valuation of the Settlement Offer made to the victims of the Room Service Market Abuse. In that they did conceal the fact that they gave the valuer instructions to discount the effect of the open short positions on the price of the share. That they narrowly defined the parameters of the valuation, such that the value was to all intents and purposes predetermined by the Defendant. They then assured the investors that it was an independent valuation and free from influence by the Defendant or the market makers.
• That this act was in direct conflict with their obligations under the RRIECHR to afford proper protection to investors’ interests, particularly in the matter of a financial crime and contrary to statements that they had previously made to the Claimant on 26 November 2003. That they did knowingly conceal the instructions and the valuation report and that this concealment was revealed in a report by the LSE Complaints Commissioner on 23 June 2005 (Exhibit 15) after a formal complaint by the Claimant against the Defendant.
• The Defendant is an RIE and has a duty of care to investors as well as a responsibility to maintain the continuous high level of integrity required as a regulator of their members and their markets. That in committing acts contrary to their Recognition Requirements the Defendant acted far below the high moral and ethical standards expected of a Regulated Investment Exchange and in so doing acted against the interests of investors and caused them serious financial loss. That this act was therefore dishonest by any normal standards let alone those of a RIE and thereby an act of bad faith and the Defendant did thereby incur liability for their actions and statements under section 291 of the FSMA.
• Acts Contrary to the Recognition Requirements for Regulated Investment Exchanges
• That the Defendant acted contrary to their duties obligations and responsibilities as laid down in the RRIECHR in:
• failing to afford proper protection for investors’ interests in the matter of a financial crime
• for failing to prevent their facilities being used for financial crime
• for failing to suspend the trading promptly when it became disorderly
• for failing to discipline their members for breaches of their rules and regulations
• for failing to protect the rights and of those investors that were not given sufficient information to seek legal redress against their counterparties elsewhere
• for failing to offer these investors suitable alternative compensation for the loss of value if there were unable to seek legal redress
• for failing to inform complainants of the complaints procedure
• for failing to maintain the high levels of integrity required of a Regulated Investment Exchange
• Market Abuse
• That the Defendant did commit gross market abuse on the Claimant and others contrary to section 397 of the FSMA by dissemination of false and misleading information in their letters of 24 December 2003 (Exhibit 7A), 12 March 2004 (Exhibit 9) and 24 March 2004 (Exhibit 10A) and in making other statements that were misleading on other occasions.
• Destruction of Share Value
• That in January 2004 the Defendant did destroy value in the shares belonging to the Claimant and others by giving permission for dilution shares to be sold to the market makers with outstanding and overdue settlement obligations.
• That this sale diluted the value of the Claimant’s shares prior to restoration to the market and did disadvantage the Claimant and others even after the assurances made by the Defendant that acceptance of the Settlement Offer would not prejudice their rights or the outcome of any legal action.
• That the destruction of share value as a result of the Defendant’s actions was contrary to their duties, obligations and responsibilities to protect investors’ interests and also to protect the rights of investors.
• That by allowing the sale of lower value shares and despite the assurances about protection of the victim’s legal rights, the actions of the Defendant negated the right to claim compensation from some market makers and compounded the loss suffered by the victims of the market abuse and others.
• Procured a Breach of Financial Liability
• That by the Defendant giving permission under Rule 3045 for the sale of dilution shares they did thereby cause the value of the undelivered shares to be greatly diminished and that in doing so the Defendant did procure a breach of liability by one of the market makers. That when a claim for additional compensation for breach of contract was heard in the courts it was agreed that the market maker had breached contract, but compensation was denied on the grounds that the value of the share had been greatly diminished by the Defendant’s action before the share was taken out of suspension and that this disadvantaged the Claimant.