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Listen up hedgies, traders and investment bankers: you are being very closely watched indeed.
Regulators on both side of the Atlantic appear to have adopted a shock-and-awe campaign as far as cracking down on insider trading is concerned.
In March 2010 alone, the UK’s Financial Services Authority secured a 21-month prison term against a former Cazenove partner accused of insider trading, and launched a series of dawn raids that ensnared employees of Moore Capital, Deutsche Bank and Exane BNP Paribas. The FSA has even sought the extradition to Britain of suspects abroad for the first time.
On the other side of the pond, the SEC has had its hands full dealing with the fallout from the cases related to the Galleon hedge fund and its founder Raj Rajaratnam; an alleged insider trader at UBS who stands accused of using coded messages to cover his tracks; and a former Fidelity employee — to cite just a few.
And on Friday, a Bloomberg report suggested that the list of arrests, convictions and accusations might grow longer yet:
As many as 11 people may be charged next week over an insider-trading ring that began at the London printers for UBS AG and JPMorgan Chase & Co.'s Cazenove unit, four people with direct knowledge of the case said.
The Financial Services Authority is preparing to file criminal charges after a two-year investigation, the people said on condition of anonymity because the defendants haven't been formally accused of a crime. 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 people.
Any charges in the probe, codenamed Saturn, would come days after the FSA arrested seven suspects in what it described as its largest crackdown on insider trading.
Richard Morton, a spokesman for UBS, and David Wells, a spokesman for JPMorgan declined to comment immediately. Toby Parker, an FSA spokesman, declined to comment. Cazenove and UBS aren't accused of any wrongdoing.
Combined with this new-found aggression is the fact that both the SEC and the FSA have begun to deploy new strategies in investigating and attempting to prosecuting instances of alleged insider trading.
In the Galleon case, for instance, the SEC made extensive use of wire-tapping and hidden recording devices – something of a first for the regulator. (That said, the technique has not quite worked out for the SEC. On Wednesday, an appeals court granted a motion filed by Rajaratnam to delay having to hand over wiretap recordings to the regulator, pending appeal.)
Back in London, the FSA — which before 2008 had never filed a single criminal insider dealing case — has also upgraded its approach, according to Bloomberg:
"The FSA is pulling out all the stops to secure criminal convictions — whether that means teaming up with another regulatory body, cutting deals with accomplices, or using extradition orders," said David Berman, a regulatory lawyer at London-based Macfarlanes LLP.
Two probes this month disclosed the FSA has made its first extradition request and is working with Britain's Serious Organised Crime Agency — which typically tracks drug rings and gangsters — to pursue insider traders. The FSA also secured a conviction this month using a plea bargain for the first time.
"We definitely have more strings to our bow, and we will use every tool at our disposal," said Toby Parker, an FSA spokesman. "We are no longer going to rely on just one aspect and see how it goes."
In keeping with the Orwellian surveillance society that is the UK, the FSA has also proposed routinely recording mobile phone calls made by traders.
Remember folks: it’s not paranoia if they really are out to get you.
Related links: The FSA guide to insider dealing – FT Alphaville Sense of urgency detected at FSA – FT Adviser on state banks caught up in FSA swoop – FT Dear derivatives traders: the SEC is watching you – FT Alphaville
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