22-03-10: Insider trading crackdown - my arse

If I had ten grand every time some character told me that financial regulators were going to start cracking down on insider trading … I’d be almost as rich as I actually am. However, my former colleagues (yes, a few do still talk to me) have been telling me recently that this practice is going to be the next big target for the City regulator, the Financial Services Authority. And, frankly, it’s about time considering their farcical record to date.

Last week, the FSA could barely contain their excitement at having secured a conviction for insider trading. Some ex-Cazenove old buffer called Malcolm Calvert (who’s City moniker was ‘Streaky’) is going to do 21 months of porridge for several bits of dodgy dealing. Funnily enough, during his stay at her majesty’s pleasure I suspect he’ll still be nicknamed ‘Streaky’ – especially after his fellow inmates see the state of his Y-fronts after ‘Big Joe’ tells him he’ll have to drop the soap next time he’s in the showers!

When I was an analyst I used to cover one of the stocks ‘Streaky’ bought on inside information just before it was acquired. I remember thinking that insiders were so obviously buying lots of shares in South Staffordshire Water (they jumped about 14% in the days just before it take over) that I had actually considered going to the regulator myself (either that or buy a few myself!). Anyway, the FSA has managed to catch one of the hundreds of people who bought some South Staff shares just before it was acquired and, flushed with success, have started running around telling anyone who’ll listen that this is the start of a new era. I’m sure the thousands of insiders out there who’ve been getting away with it for years are quaking in their £2000 Gucci boots.

In reality, this was only the third conviction the FSA had managed since it was created back in 1997. Yet even the former head of the FSA, John Tiner, has admitted that the practice is rife (he apparently went on to say other equally controversial things … like his theory that frogs generally had watertight arseholes.) The FSA estimates that 30% of corporate takeovers are preceded by ‘suspicious trades’ though I would put the number at far higher than that. By the end of my career it was commonplace for certain dubious hedge fund managers to blatantly ask me for inside information. Christ, things got so bad back in 2007 that we even had to cancel that year’s City nativity play … and that’s because no matter how hard we looked we simply couldn’t find 3 wise men and a virgin!

I’ve just read this morning that the FSA is taking another character to court for insider trading. This time it’s someone from the corporate finance department of my old bank Dresdner … Hell, I think I even remember him! It sounds to me that the FSA has noticed the SEC’s recent success in prosecuting Raj Rajaratnam’s Galleon boys over on Wall Street and want a piece of the action. Maybe there is going to be a genuine crackdown this time.

Still, whatever the FSA do, I suspect they won’t have much luck. Successfully proving someone bought shares using inside information is notoriously difficult and, anyway, the FSA is probably about to enter a period of unsettling instability. That’s because certain toffs in the soon-to-elected Tory party want the Bank of England to subsume the FSA’s responsibilities for reasons no-one quite understands. I’m sure dodgy dealers can’t wait for the ensuing confusion.

Still, if there’s one ‘take home’ point from these recent crackdowns it’s this – if you’re engaged in insider trading you should probably stop it … either that or make sure you only ever use your mobile phone and some very distant relatives when doing it!