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New alert on insider trading danger; LEGAL & FINANCE.

Byline: By John Cranage Business Staff

Midland businesses have been warned to beware a major new crackdown on insider trading launched by the City regulator, the Financial Services Authority.

The FSA, once criticised for being a toothless watchdog, is now looking to get tough, cautioned Russell Orme, corporate partner in the Birmingham office of law firm DLA Piper.

And he urged bosses to make sure company announcements were done by the book, giving no cause to arouse suspicion.

It has been estimated that about a fifth of results announcements and a third of takeovers are preceded by insider trading.

But a series of dawn raids and arrests recently suggest the FSA now means business.

The raids came just days after the announcement of two further criminal prosecutions for insider dealing.

Matthew Uberoi and Neel Uberoi have been charged with 17 counts of insider dealing in an indictment filed at the City of Westminster Magistrates' Court. The pair are said to have traded more than 300,000 shares in various companies over a four month period, between May and August 2006, while privy to inside information.

And Malcolm Calvert, a former trader and partner of Cazenove bank, was recently charged with 12 counts of insider dealing over a two-year period following his retirement from the firm. Both cases have been adjourned to September 2008.

The trial of the FSA's first criminal prosecution for insider dealing, Christopher McQuoid and his father-in-law James Melbourne, is set to commence on February 23, 2009 at Southwark Crown Court.

Mr Orme warned: "The FSA has clearly tired of being seen as a 'light touch' regulator. Custodial sentences are now regarded as the only credible deterrent. The emphasis is on all participants, regulated and unregulated alike, to take responsibility for the proper handling of inside information.

There is no coincidence in recent events. The regulator has orchestrated its actions to achieve maximum effect.

Further raids, arrests and interviews under caution are expected."

He said the FSA appeared to be committed to making greater use of its criminal powers - search and seizure of computers and documents, interviews under caution and arrests. The regulator has signalled its intention to impose fines and disgorgement of profits and, in the worst cases, to seek imprisonment of up to seven years.

"Although the primary insider dealing offence can only be committed by an individual, institutions are not outside the firing line.

"Institutions can face criminal prosecution on charges of aiding and abetting the insider dealer, and can also be charged as a party to a conspiracy to commit the offence.

"Individuals not directly involved in the dealing, but who are otherwise implicated, may also find themselves charged with the secondary criminal offences of disclosing and encouraging."

The FSA has powers to raid both homes and offices to seize relevant material. A failure to co-operate or indeed attempts to conceal can also lead to fines and imprisonment.

Mr Orme said firms should be fully prepared for such an eventuality, with frontline and back office staff geared up, systems and controls organised to be properly responsive to the regulator turning up seeking to seize documents and material and staff prepared to deal with the media fallout.

"Firms need to act now to review the integrity of their systems and controls around price sensitive information and personal account dealing. Information leaks should be thoroughly investigated and remedial action taken where necessary," said Mr Orme. "The enormous drain on management time and the adverse reputational impact which flow from the public fallout surrounding a major investigation should not be underestimated. Individuals often find that investigations take a considerable personal toll."

The regulatory environment was going to get even tougher, he warned.

"The FSA is currently working with the Attorney General's office to introduce plea bargaining powers which will enable the regulator to reach statutory immunity agreements with witnesses in exchange for hard evidence.

It is also consulting on potential changes to FSA guidance to introduce a leniency factor so that assistance provided by suspects can be taken into account when determining whether to prosecute and the level of penalties which should be imposed."

Successful prosecutions for insider dealing are difficult to achieve, requiring proof that a person has received secret price-sensitive information, and knew it was such.

Institutions can face criminal prosecution on charges of aiding and abetting the insider dealer

Russell Orme
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Sep 5, 2008
Words:727
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