FSA Arrests Include Deutsche Bank, BNP and Moore Capital Staff
As part of what is being called Britain’s financial regulator’s largest operation to crack down on insider trading, as many as eleven people from several very prestigious companies may be charged under suspicion of taking part in a long-running insider-dealing scheme. According to the BBC, Deutsche Bank, BNP Paribas, and the hedge fund Moore Capital are now known to have workers entangled in the Financial Services Authority (FSA) probe. And a Bloomberg update (brace yourself), is now claiming as many as eleven people may be charged next week over an insider-trading ring that began at the London printers for financial giants like UBS AG and JPMorgan Chase & Co.’s Cazenove unit (UBS and Cazenove themselves are not accused of any wrongdoing).
The investigation, code named Saturn, is the first joint operation between the FSA and the Serious Organised Crime Agency. The venture began in 2007 and first arrested eight people back in 2008.
Apparently, the homes of sixteen people from Moore Capital were raided by some 140 FSA officials last week, seizing computers and documents, according to Business Insider. Investigators first disclosed that one trader at Moore Capital was being held, along with five others, but his identity was later revealed to be Julian Rifat, according to Bloomberg. People with knowledge of the investigation, speaking on the condition of anonymity to Bloomberg, said that the FSA says that the north-west London operation, involving accountants and spread-betters, used leaked data from deal prospectuses being printed for the banks.
According to the Business Insider, a spokesman for Moore issued the following statement:
This morning representatives of the FSA were at our London office to serve a search warrant for documents relating to an employee of Moore Europe working as an execution trader on its London Equity Execution desk. We understand from the FSA that the investigation concerns possible insider dealing and the investigation of the employee does not involve any of the funds managed by Moore Capital.
Moore is co-operating fully with the FSA in its investigation. The employee has been placed on administrative leave pending completion of the investigation.
Although the FSA has questioned eleven suspects thus far, it has said not all may be charged. According to Bloomberg, the FSA has said it will split any jury trial in two “to make it more manageable”. About half the suspects share the last name of Shah, and some knew each other merely because they shared the same gym, sources close to the investigation said.
City printers and the Indian firms that they use to process information first came under the FSA spotlight three years ago. According to TimesOnline, “That investigation specifically looked at the role of city printers and the revolution in their industry that had seen up to 90 per cent of the typesetting of price-sensitive documentation for Stock Exchange releases outsourced to India.” The FSA is examining whether any of the seven people arrested in the current insider-trading probe used knowledge of forthcoming securities sales to make a profit, specifically block trades (i.e. large sale of securities on behalf of a corporate client).
According to Bloomberg,
Those questioned by the FSA include Deutsche Bank’s Martyn Dodgson, Exane’s Clive Roberts, and Moore Capital’s Julian Rifat. Novum Securities Ltd.’s Graeme Shelley and Iraj Parvizi, a director of Aria Capital Ltd., are also being investigated. Ben Anderson was arrested as part of the probe, according to another person familiar with the case. Anderson’s employment details couldn’t be verified.
The name of the seventh man being investigated has not yet been released.
Last year, the FSA was given the power to negotiate plea-bargains in order to pursue insider-trading investigations similar to those its U.S. counterparts have used to crack down on the crime, such as the case against Galleon Group LLC’s Raj Rajaratnam. According to Businessweek.com, a plea bargain was given to a witness against Malcolm Calvert, a former Cazenove partner who received a 21-month sentence earlier this month. Investigators are hopeful that the suspects may give evidence against one another in return for a plea.
The FSA has been trying to crack down on insider trading after criticism from lawmakers that it wasn’t doing enough to eliminate it, and specifically on hedge funds especially in the wake of the Galleon scandal, according to industry insiders. According to Bloomberg, the FSA had never filed a criminal case of insider trading before 2008. Since then, it has one all three cases to make it to trial, and has made five more separate sets of arrests.
However, in the face of the FSA’s bold action, opposition Conservative lawmakers have threatened to abolish the FSA should they win this year’s election, which must be held by June. They have not yet proposed which agency would take over the FSA’s work such as insider-trading probes.
UPDATE: The seven men arrested (including Rifat) have had their assets frozen and are being allowed a pithy allowance of just $450 per week to cover all of their needs (including legal expenses). The Financial Services Authority has said the men might not be charged for more than a year as the investigation continues and their assets are likely to remain frozen.
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