FSA Insider Dealing Enforcement Intensifies Through Transatlantic Cooperation and Criminal Prosecutions

The recent global financial crisis has led to an increased emphasis on cross-border regulatory enforcement. As regulators across the globe strive to keep pace with the multinational entities they regulate, they are increasingly seeking the assistance of their regulatory counterparts overseas. These cross-border efforts are buoyed by initiatives such as the International Organization of Securities Commissions‟ information-sharing agreement, into which more than half the world‟s securities regulators have entered, and various bilateral and multilateral treaties among government agencies. Through information exchange and other forms of cross-border enforcement assistance, these cross-border relationships and initiatives have allowed regulators to conduct investigations into market abuse with an unprecedented aggression and ever-expanding scope.

GLOBAL CRACKDOWN ON INSIDER DEALING

Insider dealing enforcement in particular has gained a renewed emphasis in the global marketplace, with Asian, American and European regulators each undertaking their own initiatives aimed at cracking down on insider dealing. The US Securities and Exchange Commission (SEC) and the UK Financial Services Authority (FSA), for example, have initiated reforms this year which adopt an increasingly aggressive posture against perceived instances of insider dealing. The SEC has introduced specialized investigative units that focus on large-scale and organized insider dealing and market manipulation schemes, and the FSA has committed itself to pursuing criminal prosecutions for insider dealing.1

Similarly, in Hong Kong, although it was not until 2008 that the Securities and Futures Commission (SFC) brought its first criminal prosecution for insider dealing, the SFC obtained the convictions of five individuals, one of whom was a banker who passed inside information to his girlfriend and family regarding a deal on which he was advising.2 The SFC has since intensified its criminal prosecution of insider dealing.

INCREASED ACTIVISM OF THE FSA

The FSA has had the power to institute criminal proceedings for insider dealing since December 2001 under Part V of the Criminal Justice Act 1993 and Section 402 of the Financial Services and Markets Act 2000 (FSMA). It first exercised its power in January 2008 when it commenced proceedings against

Christopher McQuoid and James Melbourne for insider dealing. Mr. McQuoid, a solicitor at TTP Communications, was charged with passing inside information in relation to a takeover of TTP by Motorola to his father-in-law, Mr. Melbourne, who then traded on that information. Both men were convicted in March 2009.3 Since then, the FSA has embarked on a series of high-profile prosecutions for insider dealing. In November 2009, Matthew Uberoi and his father were found guilty of 12 counts of insider dealing for trading on information obtained by Matthew Uberoi while he was an intern at a firm dealing with takeovers and price-sensitive deals.4 Malcolm Calvert, a former partner and trader at the firm Cazenove, was found guilty in March 2010 of five counts of insider dealing on a trio of corporate deals for buying shares in companies just before takeovers were unveiled.5 In November 2010, Neil Rollins, a former senior manager of PM Onboard Limited, was found guilty of five counts of insider dealing and four counts of money laundering after he traded on information he obtained by virtue of his senior position at the company, encouraged his wife to do the same and laundered the proceeds when he became aware of the FSA‟s interest in his dealing.6

On March 15, 2010, Christian Littlewood, a senior investment banker who had previously worked for Dresdner Kleinwort and British brokerage firm Shore Capital, and...