Fraud likely to remain high on the political agenda

FRAUD and financial crime are likely to remain high on the political agenda as the General Election draws closer, legal experts in the West Midlands have said.

Fraud lawyers at Challinors said the Financial Services Authority (FSA) had ramped up the number of investigations into insider trading in the last three months suggesting it was stepping up its efforts to crack down on market manipulation.

The law firm’s Fraud & Asset Recovery department, based in Birmingham, said this was an indication that the issues would play a key part in the forthcoming election.

Arun Chauhan, joint head of the FAR department, said: “Under the leadership of Margaret Cole, the FSA is stepping-up its efforts to crack-down on market manipulation, demonstrated by the marked increase already this year in the number of investigations into insider trading.

“The FSA has been cracking-down on insider trading for the past two years but the approach it is now taking is markedly different.”

The FSA has recently produced data that suggests around 30% of all trading that takes place in the two days before a takeover is announced could be influenced by inside information.

“Insider trading is said to be rife but prosecutions can take up to two years from arrest to charge as building a case is extremely complicated and requires the regulator to sift through a lot of complex information,” he added.

In the last month alone, there have been dawn raids and arrests in the City of London. Previous efforts have looked at fringe players such as interns at investment banks, retired stockbrokers and employees at second-tier firms, but the latest moves have focused on bigger fish working in the heart of the city.

Mark Kenkre, who heads up the FAR department alongside Mr Chauhan, said two recent examples showed just how seriously insider trading was now being taken.

“A suspect in the French territory in the Comoros Islands was detained and a European Arrest warrant was issued by the FSA.

“The FSA has also launched ‘Project Saturn’, an insider dealing investigation which has seen a former employee of a top City spread-betting firm charged,” he said.

As the election draws nearer, Mr Chauhan said the FSA would be assessing when normal market behaviour became illegal.

“Whilst the FSA is now targeting leading City individuals, it should also serve as a warning to any professional with sensitive market information who should not use such information for their own benefit,” he said.

Mr Kenkre said the authority had brought proceedings against solicitors in the past for insider trading in relation to corporate deals, which should serve as a warning to those in the legal profession.

“There has always been a duty of confidentiality, but if solicitors are tempted to use information themselves or pass it to third parties, they risk not just being struck from the register but could also face a custodial sentence,” he said.

“The economic downturn has seen a marked increase in fraud and financial crime. Even in the lifespan of the downturn there have been trends emerging and it would appear the FSA is now keen to put a marker down to demonstrate that market manipulation will not be tolerated and that the financial sector will have to become accustomed to regulatory bodies well and truly turning the spotlight on them.”