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FSA: Biggest-ever insider-trading raid

Robert Peston | 12:32 UK time, Tuesday, 23 March 2010

The Financial Services Authority has just put out the most tantalising statement about raids it has conducted this morning on 16 addresses in London, Oxfordshire and the south-east of England.

It describes these raids as its "largest-ever operation against insider dealing". And it has certainly put its resources where its mouth is: it has deployed 143 of its own investigators in the swoop and has collaborated with the Serious Organised Crime Agency.

So, first things first: if you noticed a troop of heavy-booted policeman carrying computers and files out of your premises this morning, do let me know (please forgive my blatant solicitation).

The FSA says that six men, including "two senior City professionals at leading city institutions and one City professional at a hedge fund" have been arrested. They are suspected of involvement in "a sophisticated and long-running insider-dealing ring".

The watchdog adds that it believes these City professionals passed inside information to traders who "traded based on this information and made significant profits as a result".

What's the significance of all this?

Well, there can no longer be any doubt that the FSA is serious about cracking down on City crime, especially illicit trading in shares and securities when in possession of privileged insider knowledge.

The FSA massively increased the resources it deploys on surveillance and enforcement three years ago - including installing a powerful computer system, Sabre, which analyses trading data and identifies patterns of possible illegal dealing.

That investment in policing now appears to be paying off in a stream of investigations and prosecutions. Leading City firms will be hoping that they don't have too many bad apples within their ranks.

Update 1707: I understand that the hedge fund raided by the FSA and SOCA this morning was Moore Capital.

Comments

  • Comment number 1.

    "Biggest-ever insider-trading"

    Trouble is that 'insider trading' is the only way that the City makes money! The problem of increased information accessibility, exacerbated by the internet, has removed the only thing that ave the City an edge (along with the regulatory environment that let them be the only persons permitted to engage in many types of trading.)

    Every so often a few people go a bit too far and get caught - that is just one of the risks of being a city trader!

    Also the FSA is doing its best not to get closed down so it has to be seen to be acting tough.

  • Comment number 2.

    Robert,

    Once again we are treated to an inside story about the City of London's Financial Services.

    Can they really sink any lower?

    I think the British public now see 'Bankers' as rating somewhere below 'Politicans', and just above 'Child-mollesters'.

  • Comment number 3.

    OK...who did not get their donation to Labour in on time? ^^

  • Comment number 4.

    I am delighted that FSA has taken this action which led to the arrest of few individuals. It is,however, sad that FSA had to resort to this and in a way it is a reflection of the society we live in, which requires serious policing of highly paid individuals in respectable positions. It is greed and when one is embarked on this, they take leave of all common sense and close their eyes and ears and say " Well it cannot happen to me". The development of complicated financial instruments probably makes people believe that their follies will not be detected and requires the regulatory authorities to be one step ahead.
    When you hear of MPs claiming false expenses. ex-Ministers being used as Taxis and MPs taking advantage of lucrative foreigh trips and combine this with fraud, it makes you think how far our values have fallen and we have become a materialistic society. How sad!!

  • Comment number 5.

    I do hope these traders arrested were not the ones that we needed to pay millions of pounds in bonuses to as the banking system could not do without them - because if they are imprisoned then the banking system will have to do without them.

    I wonder if this might be a plea they can use when it is time to sentence them - mitigation on grounds that the banking system will collapse without their invaluable input??

    Another day another shock revelation -

    Politicians found to be corrupt.
    City Traders found to be corrupt.

    Bear found excreting in the wood.

  • Comment number 6.

    Are there any honest people in the city you could probably form an exclusive club

  • Comment number 7.

    About 13 years late, but I guess its a start!

  • Comment number 8.

    And this is happening in budget week and 6 weeks before the election?

    Shurely shum mishtake......................

  • Comment number 9.

    Why am I not surprised that senior financial sector workers are caught with their hands in the wrong people's pockets ... again?

  • Comment number 10.

    FSA are sitting on much bigger issues than this and are doing nothing about it

  • Comment number 11.

    Surprise!

  • Comment number 12.

    Please, please say that a certain office in High Wycombe was raided!

  • Comment number 13.

    I'm not surprised really, that this should be today, diplomats expelled,insider dealing,only needs a revelation about the Royal family.....

    Now what on earth could the Government want to deflect attention from ??? or am i being cynical.

  • Comment number 14.

    3. At 12:56pm on 23 Mar 2010, Freeman wrote:
    OK...who did not get their donation to Labour in on time? ^^


    Very funny Freeman. Laughed to that a little too loudly.

    Please keep us updated Robert. Very interesting

  • Comment number 15.

    Can I have my pension and endowments back, please?

  • Comment number 16.

    We need to stop banks trading on their own account to start with.

    Plus I'm sure there is tons of financial spreadbetting done that uses insider information by employees at home. Its actually unclear whether this is illegal or not?

    I do not understand why any betting on financials should be legal - for a start its a simple way to avoid tax plus it also means that investors are not actually investing in companies they are just betting on the share prices.

  • Comment number 17.

    lets hope that the arrests result in convictions, because on past form when weve seen financial institutions and individuals in the dock the cases have failed because of the complexity of the dealings, and we know from experience that as well intentioned the police have been,bigger considerations have overruled the illegal actions and people have walked free because of connections and interests.

  • Comment number 18.

    2. At 12:46pm on 23 Mar 2010, EuroSider wrote:
    'I think the British public now see 'Bankers' as rating somewhere below 'Politicans', and just above 'Child-mollesters'.

    Good point, although I think I'd just put on a par to be honest.

  • Comment number 19.

    So no more posts from WOTW then!

  • Comment number 20.

    "A few bad apples". That's always the excuse.

    The reality is that financial markets are built on corruption and insider trading. They're rotten from the core. The reason "sophisticated" investors handed over funds to Madoff was precisely because they thought he had inside information. John Paulson, the hedge fund billionaire that made his fortune shorting mortgaged backed securities, helped construct those same securities with the top banks. I could go on forever

  • Comment number 21.

    5. At 1:10pm on 23 Mar 2010, GRIMUPNORTH77

    Love it.

  • Comment number 22.

    The banking and financial services industry is corrupt and the govenment was the handmaiden to this. Now the government needs to take some responsbility and put things back to secure banking. The banks have become institutions on behalf of the staff and not the depositors who are seen as fools who banks can gamble away their money. Restructure banking and if high risk investment firms are formed so be it but they should be identified as such and not call a bank. Break the banks up and declare them for how they invest and operate. End the bonsus system in banking and put the staff on salaries as the bonsus system drives high risk activities. Sounds like the governments are finally willing to take on the bankers and now if some go to jail there may be some sense of vindication for all who lost retirement funds...or this could just be a offering up of some small time heads to save the big boys.

  • Comment number 23.

    This is great news Robert, however, forgive me for being cynical but....

    How long until Labour take the credit for this one?!!!!!


    And....strange how with all this lobbying row, strikes, budget week etc, oh, and not to forget an election coming.....

    Find this all a bit stinky of engineering another smoke screen to me!

  • Comment number 24.

    Shame the police didn't do something about our Parliamentary criminals first. Failure to prosecute blatant criminals by giving them Zimbabwe-style immunity from punishment for their crimes is what is driving the electorate into the ranks of the British National Party. Arresting a few hapless city traders under 'insider trading' laws which make a 'crime'of betting on often quite freely available information whilst excusing the crimes of a majority of politicians will further enrage an electorate now ripe for big changes.The present politcal leadership can expect to do prison time when (not if) the BNP attain power.

  • Comment number 25.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 26.

    By inside trading I am guessing it goes something like this,

    People meet, preferably in a discreet location, they set a plan out about how they might be able to influence results, decisions, performance etc...

    In turn they agree on that plan and they then take away their actions.

    They then spend time implementing these plans, so therefore influencing the market place.


    They in turn get paid and make money for such activities...

    Watch out all those MP's that have been doing this for so long, it could be you next...

  • Comment number 27.

    The FSA alleges that the city professionals passed inside information to traders (either directly or via middlemen) who traded based on this inside information and that these culprits made significant profits. The FSA has so far secured five sentences of imprisonment (one suspended) in relation to insider dealing:
    McQuoid and Melbourne in March 2009;
    Matthew and Neel Uberoi in November 2009 and
    Malcolm Calvert on March 11, 2010, the latter a finance director passed on information about the proposed takeover of Neutec Pharma, a company which develops treatments for life-threatening infections.
    Why is this investigation and its subsequent convictions so important?
    Because hedge funds that are so exposed to betting on the market, and when you bet with insider information, it's a crime.
    I’m also pleased to see FSA has installed a powerful computer system, "Sabre", which analyses trading data and identifies patterns of possible illegal dealing.
    Wonderful!
    Now all the taxation people need do is add a program to Sabre that segregates all foreign exchange transaction and thereafter generates a percentage for Tobin Tax. Tobin Tax will pay for more of these investigations, identifying more illegal dealing +
    - generating money for social programs and
    - paying down the debt.

  • Comment number 28.

    >>3. At 12:56pm on 23 Mar 2010, Freeman wrote:

    >>OK...who did not get their donation to Labour in on time? ^^

    Brilliant.

    I have worked as a trader for 5 years now, although not in London. Is anyone really under the illusion that insider trading doesn't happen everyday? I will always hear good or bad news at least 2 hours before the general public and thats how the industry works. You make your contacts and repay the favour.

    Surely no one is niave enough to think that with over £200k bonus on offer the risk/reward ratio for engaging in insider trading doesn't make sense?

  • Comment number 29.

    Is it any surprise that these scams are only discovered when the slushing money supply runs tight?

    Warren Buffet decribed it best.

    "It's only when the tide goes out that you learn who's been swimming naked."

    What's most interesting is the pathetic penalties involved. Most of them constitute 'fines' which are easily paid by rich men.

    If there are any budding criminals out there - forget your every day crime, this is where it's at - high rewards, low penalties.

    ...and someone was saying how the Government is corrupt? - it seems everyone who succeeds at Capitalism is tainted with the corruption or incestious nature of the beast - there are no exceptions.

  • Comment number 30.

    Before you all get too excited...anyone else remember Ernest Saunders?(born Ernest Walter Schleyer)?

    The only known person alive to have recovered from Alzheimers!

    He was involved in an attempt to manipulate the stock market on a massive scale by inflating the price of Guinness shares and thereby assisting a £2.7 billion take-over bid for the Scottish drinks company Distillers. It was subsequently discovered that he had covertly passed $100 million to the American Ivan Boesky to invest in the share deal shortly before Boesky's prosecution and imprisonment for insider trading.

    http://en.wikipedia.org/wiki/Ernest_Saunders

    'It is frequently asserted that Saunders procured his early release by pretending to have Alzheimer's; otherwise, he is the only known person alive to recover from the disease. Gerald Ronson, one of the co-accused in the Guinness scandal implies that he planted the idea in Saunders' head that he should feign mental illness in order to obtain early release. Ronson went on to suggest that this wouldn’t be too difficult for Saunders “because besides being a psychotic liar, he was also mentally deranged”

    Since then, Saunders has worked as a business consultant, including advising mobile phone retailer Carphone Warehouse from its early days until prior to its flotation.

    He was later appointed chairman of the executive committee of a US-based multinational petrol credit-card company, Harpur-Gelco.

    Saunders also acted as a consultant to Seed International Ltd, a company based in the Cayman Islands.'

  • Comment number 31.

    Good start, but I would be more interested if the FSA revealed the names of some very senior politicians who have gained from insider dealings for years. As Mandelbrot the Malevolent laughingly said when commenting on Byers the Liar, " it's all very grubby ", and he should know.
    I look forward to the next big thing, MPs in " arms length insider dealings ", no doubt their excuse will be " it was'nt me gov, it was my dodgy broker ".

  • Comment number 32.

    > The FSA massively increased the resources it deploys on
    > surveillance and enforcement three years ago - including
    > installing a powerful computer system, Sabre, which analyses
    > trading data and identifies patterns of possible illegal dealing.

    You'd have to be stupid to put faith in the great “Sabre” computer program. It just lulls people into a false sense of security. It'll take 5 minutes to find out the patterns it searches for, and another 5 minutes to step past it. Such things are only good for “Sabre Rattling”, so forget using it for real things– even bankers are smarter than computers.

  • Comment number 33.

    I seem to recall you had a lot of good inside gen during the financial crisis Robert - I wonder if they will be coming for you next......

  • Comment number 34.

    Why has it taken 3 years for this Sabre system to start working???

    Has the FSA just found out where the socket is to plug it in??

  • Comment number 35.

    Isn't it lucky these 'honest' hedge funds are so secretive - no wonder they don't like people poking their nose around them.

    I have to agree with 10. At 1:29pm on 23 Mar 2010, ANornIron

    This is just the tip of the iceberg - Titanic ahoy!

  • Comment number 36.

    Over an hour and a half to moderate? And there we were being told the BBC is over-staffed. More Public jobs needed I Say.

  • Comment number 37.

    Let's hope that this goes all the way and that fat cats engaging fat cat barristers don't just cost us a lot of court costs and then walk away back to their Ivory Towers.

  • Comment number 38.

    DURING THE WAR . . .

    Was it not sometimes necessary to make a sacrifice to project a double or treble bluff? I beg no forgiveness for assuming that corruption in (what we used to call) Britain, is so deep and all-pervading, that one swallow only confirms we are gullible enough to swallow anything.

  • Comment number 39.

    Of course its one thing to catch these people but quite another to make sure they are properly punished. White collar criminals generally get off with no more than a slap on the wrist so we'll all be waiting with baited breath to see if the punishment fits the crime.

  • Comment number 40.

    I hope we do hear from WOTW and he's not one of those arrested... I think his comments are always worth a read and tend to be based on a genuine sense of reality... even though they're a little depressing at times... keep em coming!

  • Comment number 41.

    5. At 1:10pm on 23 Mar 2010, GRIMUPNORTH77 wrote:

    "Bear found excreting in the wood."

    nooooooo - are you serious? I always thought they used public toilets.

    Today is a very sad day.

  • Comment number 42.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 43.

    24. At 2:24pm on 23 Mar 2010, Jack Rainbow wrote:

    "The present politcal leadership can expect to do prison time when (not if) the BNP attain power."

    Over my dead body they will. Don't bring deluded ideas of a fascist revival here as one thing is certain - the people won't fall for it a second time.

    What is a rainbow Jack with only one colour? - A pointless arc of blandness.

  • Comment number 44.

    2 hours to moderate posts?!!!!

    WHAT is going on?!

    Budget leaks about banks and bank accounts, FSA 'Biggest-ever insider trading raiD....????

    Posters asking a lot of questions, suggesting government 'engineering' to divert attention away from something.....

    With this amount of 'look aren't we wonderful' and almost non-existent blog moderation I am getting seriously spooked that something far more serious is lurking in the depths.

    The last time multiple diversionary tactics like these were employed, the banks were crashing over the edge of the abyss and hanging on by a fingernail.

    WHAT'S GOING ON?

  • Comment number 45.

    19. At 2:03pm on 23 Mar 2010, Uphios wrote:

    "So no more posts from WOTW then!"

    Are you mad - I worked at a hedge fund, I lasted 3 weeks before I realised their processes were full of holes, their systems were easily circumvented and their attitude towards risk and compliance was "if the boss says it's ok - then it's all good"

    ...and didn't that same company fire a trader about 18 months after I left for wrongdoings after the FSA finally caught on!

    The best move I ever made.

    The secret is that the reason hedge fund employees are 'working such long hard hours' (ahhhhhh poor liddle fellas) is because they're busy covering up all the mistakes and cons they're doing after work hours!

    I've been on the inside - and it's not pretty.

  • Comment number 46.

    17. At 1:49pm on 23 Mar 2010, syd vaughan wrote:

    "lets hope that the arrests result in convictions, because on past form when weve seen financial institutions and individuals in the dock the cases have failed because of the complexity of the dealings"

    Ah would that be their 'financial innovation' they're all so proud of and we're all so in awe of?

    I knew it had a purpose....

  • Comment number 47.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 48.

    Unfortunately insider trading is the achillies heel of the market economy.

    "One example of this is his article in the September 1970 issue of The New York Times Magazine, where he claims that the social responsibility of business is “to use its resources and engage in activities designed to increase its profits…(through) open and free competition without deception or fraud"

    Milton Friedman - Arch lord of Capitalism - even he realises that the massive levels of fraud in our 'free market' destroy whatever good the system is supposed to do.

    He assumes that driven self interest is a 'good thing' but cannot show there is a clear line between pursuing self interest and committing fraud. Nornally the expansion of the money supply during a boom ensures that nobody is too bothered about drawing that line (which the FSA are now doing)

    I'm sure the subjects of these raids were only acting in their self interest (albeit illegally) - and who's to say what they did was illegal - and yet what Goldman did in Greece was legal?
    This is the messy situation you get when you allow the legislator to be influenced by commerce (take note Hoon, Byers and Hewitt) - and now how do we trust any law to be 'in our best interests' when our leaders are influences by the same self interest the Economy is.

    Sadly this is the end for Friedman and his Chicago boys. Their fundamental reasoning is flawed - and we can see the evidence of this all around us as the towers of Babel fall...

    ...and yet this is the Economic policy the Tories tie themselves to and to which Labour subscribed to for the last decade.

  • Comment number 49.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 50.

    Got to be careful about comments that say "insider dealing is the only way the city makes money", as that defeats the objective of MAD and also the principles of regulatory policies in the financial sector.

    Insider trading is an abuse of privilege and it is prima facie illegal. Its seems like a lazy approach to make money as opposed to using one's intuition and business acumen.

    We can't afford to believe that cheating is the way of life, that is why corruption is perenial in most part of the developing world.

  • Comment number 51.

    28. At 2:50pm on 23 Mar 2010, Treading Water wrote:

    "Surely no one is niave enough to think that with over £200k bonus on offer the risk/reward ratio for engaging in insider trading doesn't make sense?"

    Classic - a great reason for paying large bonuses - it really makes sure all the 'rules are abided by' doesn't it?

    ....just like football managers and their bungs for players - is it a surprise?

    I suppose we the untalented don't understand why the talented need such motivation - we should just shut up and pay our taxes to those who are clearly better than we are...

  • Comment number 52.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 53.

    30. At 3:11pm on 23 Mar 2010, DebtJuggler wrote:
    Before you all get too excited...anyone else remember Ernest Saunders?(born Ernest Walter Schleyer)?

    Oh you mean the only known case of a miraculous cure for dementia, not at Lourdes, but at HMP!

    Now which government failed the 'tough on crime' test for that one....

    Maybe Kermit the Frog would make a better job of running the economy of the planet, running the justice system, running the, well the entire planet. Let's face it, have we had a decent, honest government in living memory?

  • Comment number 54.

    34. At 3:21pm on 23 Mar 2010, tman1972

    After all the IT disasters the entire industry has inflicted on us all, need you ask? They are just as dangerous and incompetent as bankers - just don't get to muck up entire economies, well, not really.

  • Comment number 55.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 56.

    44. At 4:33pm on 23 Mar 2010, Tigerjayj wrote:

    "WHAT'S GOING ON?"

    Ah this would be the cuts the BBC announced they were making which they assured us "won't affect our service"

    ...just another lie in a torrent of lies coming from all directions at the moment. The one thing which retains (and infact increases) it's value in recession is the truth.

  • Comment number 57.

    Jacques Cartier

    What did you say @47 - maybe I said the same @42.

    We must be getting closer to the truth.....I knew this scattergun approach would work eventually.

    We'll show these journalists a thing or two about unearthing stories.

    Message to the moderators - why bother? The Beeb is planning to can you all anyway - you may aswell let everything through now...

  • Comment number 58.

    "Comments posted to BBC blogs will be removed if they are considered
    likely to provoke, attack or offend others; are racist, sexist,
    homophobic, sexually explicit, abusive or otherwise objectionable;
    are considered to have been posted with an intention to disrupt;
    contain swear words (including abbreviations or alternative
    spellings) or other language likely to offend. "

    Otherwise objectionable to who?

    Intending to disrupt who?

    This is a blog about criminal activity - are we concerned we might be 'offending potential criminals'?

    Can we not offend those who have offended against the law (potentially)?

    Oh dear, the Beeb finds itself in the same moral maze the politicians and the bankers. How far can you go to protect your own image?

  • Comment number 59.

    57. At 5:42pm on 23 Mar 2010, writingsonthewall wrote:

    Jacques Cartier

    What did you say @47 - maybe I said the same @42.

    We must be getting closer to the truth.....I knew this scattergun approach would work eventually.

    ..........................................


    Rolls on floor laughing again, second time today! I must admit I am wondering what you wrote because although I may not agree with either of your sentiements I do like to read your challenging posts.

    Don't let the B******s get you down!. :-}

  • Comment number 60.

    34. tman1972 'Why has it taken 3 years for this Sabre system to start working???

    Has the FSA just found out where the socket is to plug it in??'

    Maybe Blair/Brown etc told the FSA to run in Sabre-Lite (beta testing) mode in the past? It's odd isn't it? We were told by all the economic gurus that the markets shouldn't be regulated because markets find their natural positions (see THE WARNING, FRONTLINE, Greenspan etc), and yet they created the SEC and FSA to ....regulate.

    As traders have said here, they do 'inside-trading' all the time, it's called trusting the markets isn't it?

  • Comment number 61.

    Whether we like it or not fiddling has become part of our system.
    The whole economy would grind to a halt if it wasnt for councils getting dodgy companies onto the preferred vendors list, development agencies passing work through on the nod, insane planning decisions, defence procurement oddities, judges with funny handshakes, golf clubs, chairmen knowing each other, Ex ministers getting on.
    Where do you begin and where do you stop. Define legal.
    You just dont get caught.
    If you do then dont be a little man.
    The ever expanding system needs fraud and fiddling.
    I mean you dont think for one minute that if everyone was circumspect and proper in their dealings that the money supply would expand as required?
    The politicians know this only too well and positively encourage grant fiddling as a way of getting growth. Thats why they want their turn at the trough.
    Just dont get caught.
    It is embarrassing for the lords and masters. It is they that have to give out paltry penalties. To encourage the others.
    There are only so many blind eyes that can be turned.

  • Comment number 62.

    #29 WOTW wrote

    '...What's most interesting is the pathetic penalties involved. Most of them constitute 'fines' which are easily paid by rich men. ...'

    Not so sure about that, I think this is the start of HMG clawing some of the money back.

    I had always thought it a little odd that the Terrorism Act was used against Icelandic Banks but it gave access to all the accounts and all the transaction records. (follow the money)

    The Proceeds of Crime Act (originally brought in to seize drug dealing profits) seems ideally placed to capture a few yachts and country mansions.

    The FSA and SOCA could very well have the last laugh on this.

  • Comment number 63.

    Aren't these people rich enough?

    What's the matter with them, severe personality disorders? (Can't help pitying them. But will they ever learn it was their personal greed, not desperation for money, that caused the problem?)

  • Comment number 64.

    63. spareusthelies 'What's the matter with them, severe personality disorders?'

    Probably, but if those behaviours allow them to get the big bonuses, the problem is not so much that there's anything the matter with them, as with the system which employs and rewards them!

    But, and this is the mega but, see the next blog where it's made painfully clear that it's the individual rather than the system which is collared.

    That's most cleverly done so it will not change. Too many do too well by it for it to be otherwise. It's systematic.

  • Comment number 65.

    48. At 4:55pm on 23 Mar 2010, writingsonthewall wrote:
    "Unfortunately insider trading is the achillies heel of the market economy."
    Your post is good but doesn't go far enough. Insider Trading IS the market economy. Markets are supposed to be full of individuals acting rationally and in receipt of perfect information, I recall from my school days. What a joke! The Global Financial system runs on "partial" access to information, there is just a gradation of insiders with differing access to information. There are no genuine market conditions hence no market economies, just casino gamblers and corrupt power brokers.

  • Comment number 66.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 67.

    This comment was removed because the moderators found it broke the house rules. Explain.

 

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