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Six arrested after major insider trading sting in London

Text by News Wires

Latest update : 2010-03-25

Six men have been arrested on suspicion of insider dealing after a major probe by the UK’s Financial Services Authority on banks including Deutsche Bank AG and BNP Paribas SA, as well as US hedge fund Moore Capital, in London's financial district.

REUTERS - One of the biggest insider trading cases to hit London in years cast a shadow on Tuesday on European banks Deutsche Bank AG and BNP Paribas SA, as well as U.S. hedge fund Moore Capital.

A trader at the London arm of New York-based Moore, along with employees of Deutsche and investment bank Exane, partly owned by BNP Paribas, were among a group of six people arrested by British authorities in a probe that sent shockwaves through the City’s financial district.

A spokesman for Moore, a $14 billion hedge fund led by secretive U.S.-born billionaire Louis Moore Bacon, said the firm is cooperating with the probe by the Financial Services Authority. Bacon founded Moore in 1986.

Dramatizing the scope of the operation, the FSA said a squad of 143 officers raided 16 residential and business addresses in London on Tuesday, arresting the six men and seizing documents and computers.

So far, none of the six people arrested have been charged or formally identified by British authorities. And it is not clear just how big the investigation will become.

But the move by the FSA comes a few months after the hedge fund world in the United States was rocked by the big Galleon insider trading case, in which nearly two-dozen people were charged by U.S. authorities.

A Moore spokesman said the investigation of its employee, who was placed on administrative leave, did not involve any funds managed by the group.

The trader being investigated is Julian Rifat, said a person close to the hedge fund. Rifat, who joined Moore’s London operation in 2008, is a so-called execution trader, whose main job is completing equity trades for the fund.

Rifat worked for Dresdner Kleinwort and Brevan Howard before joining Moore.

Attempts to find Rifat’s home number were not immediately successful.

Moore has about 70 registered employees working in London, according to an FSA website.

A spokesman for Deutsche said: “We are cooperating with authorities as they look into this matter.”

Meanwhile media reports said an employee of Exane, part-owned by BNP Paribas, has been questioned by the FSA about insider trading allegations, the bank said.

The Daily Telegraph reported the employee’s name was Clive Roberts. A spokesman for Exane confirmed Roberts is head of European sales trading at the firm, but declined to comment on whether he was the employee being investigated.

The FSA said earlier that two senior financial market professionals and a hedge fund employee were among the six arrested. The raids were made together with the Serious Organised Crime Agency (SOCA), a special police unit.

The FSA said the two senior financial market professionals worked at “leading City institutions,” referring to London’s financial district.

“It is believed that the City professionals passed inside information to traders (either directly or via middlemen) who traded on this information and have made significant profits as a result,” the FSA said in a statement.

Clamp down

The FSA declined to divulge any further details about the operation, the largest against insider trading to date.

In September 2008, the FSA fined Steven Harrison, a former hedge fund manager at Moore’s London group, for market abuse, agreeing he would not work as a trader or fund manager for 12 months.

Harrison, while a manager on the Moore Credit fund, told a colleague to buy senior notes in chemicals maker Rhodia after having been given inside information from inside Credit Suisse, the FSA said at the time.

Credit Suisse declined to comment on the current investigation.

The FSA’s investigation began in late 2007 as part of the regulator’s attempt to clamp down on market abuse, fraud, and poor systems and controls.

“This is an ongoing investigation and when we have more information we will make it public,” an FSA spokesman said.

Nathan Willmott, a partner at law firm Berwin Leighton Paisner, said this case was likely to have hinged on covert surveillance of the suspects to secure evidence, which was a “significantly more advanced approach” than used in the past.

Previously, the FSA has relied on whistleblowers to help put together insider dealing cases, which are notoriously hard to prosecute.

“The FSA is striking to maintain the good name of the City,” said Simon Morris of law firm CMS Cameron McKenna. “But the proof of the striking is in the jailing, and we will have to wait several years before we know whether (the) FSA has found a smoking gun or a damp squib (in this case).”

The FSA has toughened up its enforcement policy after years of being criticised for not doing enough to stop market abuse. In 2009, it levied a record level of fines and launched its first two successful criminal prosecutions.

Date created : 2010-03-24