Wednesday, July 30, 2008

Insiders Arrested In London

Is it just me or are we seeing an American style stance from the regulators in the UK. I say this as news of 8 people being arrested in London is doing the rounds of the press. The tone is similar to that we have seen in the US with the recent Bear Stearns issue.

The fact is, you would have to be pretty dim these days to be involved in some type of insider trading situation as we all know that the regulators and politicians are sharpening their knives for anyone in the industry.

Their constant cock-ups of regulating the markets, highlighted by Northern Rock, is now leading to a regulator who needs a few scalps to re-assert its authority.

A sub-contractor at JPMorgan Cazenove, the investment bank and a junior member of support staff at UBS, the Swiss bank, were two of the eight arrested, it was confirmed last night.

The broadsheets report that the regulator’s largest criminal operation to date involved 40 of its staff and officers from the City of London Police. The task force arrested eight men, aged between 27 and 48, and executed search warrants at sites across London and the South East in what the FSA called an ongoing inquiry. “This is a major investigation for the FSA,” a spokeswoman for the regulator said.

The men were being questioned by police last night and lawyers have suggested that the nature of the simultaneous raids, and arrests, is a sign of an 'organised' group.

A Cazenove spokeswoman told The Times: “We can confirm that a sub- contractor in a support services function was one of the eight arrested.” The individual concerned was not employed by Cazenove but by a company contracted to Cazenove, the Queen’s stockbroker.

UBS confirmed: “We can confirm that a junior member of UBS’s support staff in London has been arrested and has been suspended from work while the FSA carries out its investigation.”

The raids come after a recent flurry of activity from the FSA, which has previously received strong criticism for being reluctant to use its powers of criminal prosecution.

The regulator currently has three criminal prosecutions under way, including a case against Malcolm Calvert, a former Cazenove partner accused of trading on inside information after he retired from the stockbroker. Mr Calvert, 63, from Cobham, Surrey, has indicated that he will plead not guilty to 12 counts of insider dealing.

On Monday the regulator charged Matthew Uberoi and Neel Uberoi with 17 counts of insider dealing in an indictment filed at the City of Westminster Magistrates’ Court.

The FSA has accused the pair, who are related, of exploiting inside information to trade thousands of shares in NeuTec Pharma and Gulf Keystone Petroleum over four months in 2006.

The thing with all of this is that insider trading is a notoriously difficult crime to prosecute because of the nature of the flow of information, especially in these times of the Internet. It also appears that FSA and other police and fraud authorities have found it difficult to prosecute even the most obvious of cases in the past.

However, the FSA does have a backdoor to prosecuting those who abuse the rules and that is 'Market Manipulation'. I believe this is a civil issue rather than a criminal one but it is far easier to prosecute.

I hope that if the group of insiders are guilty then the FSA throw the book at them, it will go a long way to cleaning up the business and will scare the pants off others doing it or contemplating doing it. I also hope that this is not just another FSA fishing trip built on rumor, innuendo and a few phones calls.

If they fail to prosecute this case, with all the press it has garnered, then it will be a huge error and more egg thrown in the regulators face just at a time when it does not need it.

I must admit, however, that I am feeling that the regulators and the politicians are really focusing on the industry as scapegoats for the current market crisis. What better than to have a bunch of wealthy guys as poster boys for a 'greedy' industry intent on enriching itself at the cost of the average guy?

Of course this is largely stuff and nonsense, but as a way to bring the flagging Labour government’s approval numbers back up it is a slam dunk with the public.

Batten down the hatches guys... there is more to come.

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