The FSA investigation
On March 23, 2010, in the first operation carried out jointly
between the UK Financial Services Authority (FSA) and the UK
Serious Organised Crime Agency (SOCA), 16 addresses in the UK were
searched in what the FSA described as its "largest ever
operation against insider dealing". In a statement, the FSA
said that six men, including two senior city professionals at
leading city institutions and one city professional at a hedge
fund, had been arrested on suspicion of being involved in a
sophisticated and long-running insider dealing ring. The FSA stated
that it is believed that the individuals passed inside information
to traders (either directly or via middlemen) who made significant
profits as a result of trading based on this information.
Documents and computers were seized from both residential and
business premises. The operation was carried out by 143 FSA
personnel together with officers from SOCA, a part of a joint
investigation which commenced in late 2007.
These developments demonstrate the FSA's intention to be more
active in pursuing criminal prosecutions as part of its policy of
"credible deterrence", which is aimed at deterring
insider dealing and market abuse in the UK.
The pursuit of this objective is also reflected by other
developments at the FSA this month.
Other criminal prosecutions pursued by the FSA
On March 10, 2010, the FSA obtained the criminal conviction of a
retired partner of a leading City institution in a high profile
insider dealing prosecution. The FSA is also currently prosecuting
three other criminal insider dealing cases.
The FSA's new penalties policy
In addition to its power to prosecute, the FSA can impose civil
fines where market abuse is found to have taken place. On March 6,
2010, the FSA's new penalties policy came into effect. One
aspect of this policy concerns the level of fines that can be
imposed for market abuse, which includes insider dealing.
Where an individual is found to have committed market abuse, the
FSA will seek, where practicable, a "disgorgement" of
profits, i.e., it will seek to deprive that person of the financial
benefit derived as a result of his conduct. In assessing the level
of fine to impose, the FSA will consider factors such as the
individual's income and the profit he made as a result of his
behaviour. In serious cases the minimum fine will be
£100,000.
The FSA has said that their new penalties policy could see
enforcement fines treble in size.
The FSA is recruiting additional staff
Despite the Conservative party threatening to abolish the
organisation should it win the forthcoming UK election, the FSA
announced on March 17, 2010, that it is planning to recruit an
additional 460 staff this year.
This reflects the FSA's aim to adopt a more intensive approach
to supervision and enforcement.
Conclusion
Each of these developments illustrates the FSA's intention to
use "credible deterrence" to prevent insider dealing in
the UK. The FSA's focus on investigating insider dealing also
emphasizes the importance of companies ensuring that their policies
and procedures minimize the likelihood of their employees engaging
in such conduct.
FSA statement on the investigation:
http://www.fsa.gov.uk/pages/Library/Communication/PR/2010/052.shtml
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