FSA dawn raids for Insider Trading

The FSA and SOCA have arrested six men, including senior executives and a trader at a number of financial institutions, in what is thought to be the FSA’s largest ever operation against insider trading.  The men were arrested on suspicion of involvement in a sophisticated and long-running insider-dealing ring, with investigations into the matter reportedly starting in late 2007. 

It is the first time that the organisations have worked together and, with over 140 police officers and FSA staff involved in the raids, is the strongest indication to date that the FSA is delivering on its promise to step up its efforts against financial crime.

However, the success of this action will be in securing criminal convictions and jail sentences and it may be some time before we know whether FSA has found a smoking gun or a damp squib.   

The raids come following the recent prosecution of former Cazenove partner Malcolm Calvert, who received a 21-month jail sentence for insider trading.  This gives the regulator a run of three successful prosecutions in a row while three other insider-dealing cases are currently set for trial. 

The FSA has long been promising to crack down on market abuse by taking a more robust and aggressive approach towards enforcement particularly in relation to insider dealing.  This has been emphasised by the departing chief executive Hector Sants’ warning in March 2009 that the City should be ‘afraid’ of the regulator, and the FSA’s 2010/11 business plan, which states that the focus of their enforcement action has moved towards taking a harsher stance. 

The recent run of raids and prosecutions seems to suggest that this shift is slowly starting to take effect.     

By FSA’s own estimations, there are suspicious share price movements in 29% of takeover bids, and despite the recent activity, FSA may still have a long way to go yet to reduce this number.  What is clear however is that the FSA is determined to bring offenders before the criminal courts, using high-profile enforcement cases as a deterrent to systemic market abuse.

 The regulator has indicated that they intend to maintain the momentum that has been built up in recent months and Margaret Cole, the FSA director of enforcement and financial crime, has said that FSA aims to bring roughly five criminal cases a year. 

While in the past firms may have been able to take comfort from the fact that insider dealing is notoriously difficult to prosecute against, it is clearly now time for the City to devote more time and attention to the prevention of illegal practices.