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Malcolm Calvert's conviction will encourage FSA to go hunting for more scalps
Simon English 11 Mar 2010
Today's sentencing of former Cazenove partner Malcolm Calvert for insider trading will send a jolt across City dealing rooms.
For most of the history of London's financial centre, trading on privileged information was not only legal it was expected — a perk of the job.
Even since it was made a criminal offence in the 1970s, many in the City have enjoyed the certainty that convictions were extremely hard to secure and therefore rare — only the foolish or careless were caught.
The FSA secured its first victories last March when a solicitor, Christopher McQuoid, and his father-in-law, James Melbourne, were found guilty of dealing in shares of TPP Communications. The pair split a profit of £50,000. McQuoid got eight months in prison, Melbourne the same sentence suspended for a year. They was clumsy to say the least.
The conviction of Calvert on five counts of insider trading relating to trades in six shares between 2003 and 2005 is a game-changer. Calvert was a pro, a respected and clever operator.
A newly emboldened Financial Services Authority may now be willing to pursue cases against individuals and perhaps entire firms even when it lacks watertight evidence, say lawyers.
Calvert, although retired, is a major scalp as he worked for Cazenove, a firm at the heart of the City.
Cazenove, now owned by US banking giant JP Morgan, is at pains to point out that it was not on trial. Nevertheless the case is an embarrassment to a firm which prides itself on a reputation for discretion and fair dealing.
Rumours about the identity of the secret source within the bank that leaked details of impending takeover bids to Calvert were today flying across town. Who else at Cazenove was at it?
The FSA spent four years and a great deal of money on bringing Calvert to trial. If it had lost it would have been deeply disappointed and would probably have backed off on other cases that are pending.
Daren Allen, a partner and head of their financial services team at legal eagles DLA Piper, says traders are effectively on notice.
“It sends out a clear message to those in the financial sector that they have to be on their guard. The FSA is saying: if you transgress, it won't be a fine it will be a criminal sanction,” he said.
“They've spent a lot of money on trying to achieve credible deterrence. They have gone down the criminal route to send a very clear signal to the City that this sort of behaviour will not be tolerated.
“The FSA is serious about going after these people.”
How much insider trading takes place? The answer is, it depends what you call insider trading. City professionals claim that it is hard to distinguish what counts as genuine inside information from what is merely a lucky guess.
With rumours always rampant and traders taking punts as a matter of course, some bets are bound to come good, they say.
This argument has usually worked as a defence — now it may not, especially following a terrible recession widely seen as being caused, in part, by the speculative activities of the financial industry.
The FSA is looking for more scalps. And juries may be seeking revenge.
INSIDER TRACKED
Calvert's conviction and sentencing to 21 months in jail was a coup for the Financial Services Authority.
The 65-year-old, known as “Streaky” to his friends because of his habit of running quickly around the trading floor when he was a young trader, obtained secret details of pending takeover bids and mergers from a source at Cazenove, where he had worked since 1961.
That source was never identified, referred to instead by the FSA as “Mr X”.
Calvert bought thousands of shares in six companies: cider maker HP Bulmer, Macdonald Hotels, drug company Vernalis, construction firm Johnston Goup, water firm South Staffordshire and motoring group the RAC ahead of bids that sent the shares soaring in value. He and the friend split a £280,000 profit.
The friend who placed the trades, Bertie Hatcher, now has dementia. His evidence against Calvert was read to the court because he was deemed unfit to attend the trial.
Reader views (1)
I have no knowledge if the person convicted justfied being so, but or whether as you indicate juries are seeking revenge.
Saying that the thing I would put my money on would be the ability of anyone working in the City, Canary Wharf Mayfair or Canning Town to outsmart the FSA.
The city will always be not just one step ahead but light years ahead of teh FSA under its present management and why? Because it takes a poached turned game keeper to catch what needs to be caught and the FSA senior managementunder its poresent leadership would't know how to walk through an open door.
They are however excellent at rhetoric but when you look at the abysmal failings to date, Investment Trusts, Endowments, Payment Protection, Critical Illness, Bank Charges, Sub Prime Lending, Over leveraging on trading, Insider dealing to name but a few.
The money made against the penalties levied by the FSA has made it open season to allow almost city firm to abuse the public and not only get away with it but take away massive profits to boot and in almost all instances still keep their jobs.
It took the FSA alone to show that crime in the city most certainly pays.
Until Turner, Sants and all senior grossly overpaid managers are removed( and replaced with those who actually have a clue!) to 'socially useful' jobs the problems of today will be around for another 200 years.
I dont blame the FSA staff at all, this is all caused by inept management We need to look at causes as well as solutions.
- Robert Marshall, LONDON, 11/03/2010 16:37
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