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Two European executives were found to have committed insider dealing, following an extensive investigation by their home country’s financial regulator. The men, who uncovered details of events that would move the price of stock through their connections in the financial markets, passed the details onto other parties to make the trades. However, the pair were found to have been using insider information and received long prison sentences, with financial sanctions worth around €2 million imposed on them by the regulator.
Person A was an investment banker who had been the managing director of a major financial institution, whilst Person B was a finance director at a major retail firm as well as a chartered accountant. This anonymised case study shows the steps regulators will take to uncover market abuse and reprimand those who seek an unfair advantage over the market.
The background
In the second half of the 2010s, Person A worked for three different major investment banks in senior roles. As a result of his positions, he gained access to information about transactions that were set to take place, either because he was working on the trade or was able to ascertain vital non-public information from colleagues about their projects.
He then passed on the information to Person B, a close friend, who in turn made trading recommendations based on the predicted moves in the market to two other men who would make the transactions on behalf of the group. The participants shared the profits, which are believed to have totalled around €8.5 million.
The investigation
As a result of the suspicious trades, the country’s regulator began investigating the individuals who had initiated them. Despite Person A’s denial that he had any involvement with share trading or advising on these trades, the investigators found evidence that he was involved, including spreadsheets detailing information relating to the trades on an encrypted USB stick. Authorities were able to access the device because it used the same password as many of Person A’s other accounts.
The regulator found that Person A and Person B had used ‘burner’ mobile phones that remained unregistered. The scheme also involved safety deposit boxes as well as encoded computer files and drives, helping them conduct their operation.
The investigators found evidence that the two men had access to inside information on five high-profile company moves, using that information to make trades that brought significant profits after the moves became public.
At trial, the men were found guilty of insider dealing on these five counts and sentenced to four-and-a-half and three-and-a-half years in prison respectively. They also received confiscation orders for a total of around €2 million, the proceeds of the five trades and 23 additional transactions that the regulator found happened within the same timeframe and in the same manner.
The other men in the group were acquitted as the regulator could not prove they were aware that the recommendations were made using inside information.
Prevent market abuse by employees
Insider lists help identify who is aware of inside information, making investigations into insider dealing more straightforward. InsiderLog is insider list management software that helps companies to create compliant insider lists and automates the process of reminding insiders of their obligations with the law.
An effective employee personal trading policy is crucial for fostering a culture of compliance. It ensures that staff are aware they must not use insider information for trading and helps avoid conflicts of interest with clients. A pre-clearance process for prospective employee trades is one way to show regulators your commitment to maintaining market integrity.
TradeLog is personal account dealing software that enables you to implement a customised pre-clearance procedure that you can utilise to stop potential insider trading activities. Request a demo of TradeLog today.
