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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