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City dealers like to say that to get done for insider trading you'd have to be incredibly unlucky or really thick. It seems fair to put Christopher McQuoid and his father-in-law James Melbourne into the second group.
The pair were sentenced yesterday in the first criminal conviction for insider trading the Financial Services Authority has ever secured.
Caught by the FSA? The shame!
The conspiracy, though that is too grand a word, concocted by the pair was not sophisticated. As legal counsel to TPP Communications, McQuoid learned on 10 May, 2006, about a take-over bid at 45p a share - about three times the then price.
His father-in-law, who had never traded the stock before, bought on the 30th, two days before the deal was announced. Later, he sent McQuoid a cheque to split the winnings.
Financial crime isn't for everyone.
I can't offer a complete cut-out-and-keep guide on how to avoid prosecution for insider trading, as I'm told this would be grossly irresponsible and possibly entertaining - respectable newspapers steer well clear of that sort of thing.
But in general, McQuoid's main mistake was being too honest (stick with me). A better approach would have seen him widen the circle of people who knew, cutting his own gains but hugely reducing the chance of discovery.
Once the share price (see chart) is moving at right angles, you're in trouble. If it edges gently upwards in the weeks ahead of an agreed deal, leaving only marginal upside when the news is published, it's hard to make a case for insider dealing.
CLICK ON THE PICTURE TO SEE A LARGER VERSION
By complete coincidence, that's how share-price charts look ahead of nearly all takeover deals, almost as if insider trading is rife and the main purpose of the City is to divert money from pension funds to bankers and brokers. It doesn't get prosecuted, because the professionals are cuter than McQuoid.
What he should have done was to alert a dealer friend to his information. That dealer would then trade for a small number of favoured clients, pushing the stock up just a little - the key point is that the first "inside" trade shouldn't be done by the insider. At that point McQuoid buys a few for himself via a different broker, preferably not in his own name or that of a near relative.
Then he leaks again to a wider City community, by which point the internet message boards are full of chatter and the stock is seriously on the move. By the time the company is forced by the Stock Exchange to comment on its rising share price, everyone seems to know.
A leak to the press is also handy- a few words in a stock-market report gives cover for everyone involved, who can claim they bought on the hunch the paper had it right. The FSA, if it even bothers, is left chasing rumours. It has the suspicion something's up, but it can't prove a thing. McQuoid can then take his family out for dinner, having banked a few thousand quid.
Instead he's got eight months in prison. His father-in-law has the same sentence, suspended for 12 months.
In truth, jail seems harsh. On a social networking website, McQuoid lists his interests as scuba diving and indolence, which suggest a fine legal career was ahead of him. If stupidity is a jailable offence, then large parts of the judiciary are in serious trouble.
The FSA is pleased with itself for finally catching someone, but this conviction doesn't actually change the game much. When they get the guy at Goldman Sachs, then they'll have something to brag about.
Lloyd's passes his lordship the gravy boat
Under what circumstances would Lord Levene of Portsoken see his pay as chairman of Lloyd's of London stay flat or even (sharp intake of breath) fall?
Under no known conditions, seems to be the answer. The annual report reveals he got £806,000 last year — for a part-time, non-executive role. This was up from an already tasty £683,000 the year before — reward, presumably, for a fine performance (it has rocketed from a paltry £400,000 in 2003).
Lloyds profits halved last year to £1.9 billion — a good result given the financial crisis perhaps, but hardly sparkling.
Asked for a justification, Lloyd's offered this: “Bonuses and pay increases are awarded by the Nominations, Appointments and Compensation Committee (NACC), an independent committee made up of Council members. The NACC is confident the salaries awarded are the right pay for the roles.
“Lloyd's bonuses are performance-related and are in recognition of the progress made by the Corporation in the last year against the objectives set out in the Three-Year Plan.”
No one could look at the make-up of the NACC and conclude that it is independent in any meaningful way. So we'll just have to conclude that its real role is to keep the gravy train rolling.
The word on Hugh's bonds is… furious
If Hugh Osmond ever wants to tap the bond market again, he may have some explaining to do first.
The pubs-to-insurance guru upset quite a lot of people last week, though he may not yet be aware just how angry they are.
On the day minds were focused on the Government's failed gilts auction, his Pearl Group slipped out a late-afternoon notice to the stock market that it would not be honouring a £33 million interest payment on a £500 million bond.
The next day, the FT's insurance desk did its usual excellent job, but no one else noticed. Skilful news management, perhaps. Stripped of jargon, the statement says this:
“We could pay this coupon without difficulty, but we've decided instead to invoke a clause in the small print which means we don't have to. If we get any stick for this decision, we might, might, offer to buy the debt back from the bondholders at 12.5p in the pound. We'll let you know more at some later date, when it suits us.”
Doubtless, the small print in the prospectus when the bond was issued does allow Pearl to simply defer payments, but there's a tacit understanding it wouldn't do so unless the company was in serious trouble, which it insists it isn't.
For the bondholders, some of whom are muttering about lawsuits and action groups, the offer (perhaps) of £62.5 million for the £500 million they are owed is pretty close to insulting.
The original bond was issued when the company was owned by Resolution under the management of the highly respected Clive Cowdery and Mike Biggs. When the company changed ownership, so did the bond debts.
Biggs & Co could raise fresh money tomorrow if they wanted. For Osmond, it would be trickier.
True believers still won't shrug off Ayn Rand
How to explain the return to fashion of Ayn Rand, the über-libertarian who may be the closest thing to a pin-up girl the far right ever had?
Rand's books are rattling up the bestseller charts as a new generation of regulation-hating nutjobs worry the government is interfering with their right to do whatever they like.
In her most famous work, Atlas Shrugged, Rand imagines a world where business leaders and bankers withdraw their brilliant labour and retreat to a mountain hideaway to escape the tyranny of the mediocre.
Given that many of these industrial giants are now only still in operation thanks to subsidies from the tax-paying mediocrities they so despise, you'd think they might have reached the conclusion that it's us who need protecting from them, not the other way round.
Alan Greenspan, perhaps her most famous fan, has admitted he's now less sure about her philosophy, earning scorn from true believers. “Greenspan has sold his soul to the devil,” says Yaron Brook of the Ayn Rand Institute.
Rand herself, a heavy smoker who regarded health warnings as a communist conspiracy, hasn't been heard from since 1982.
She died of lung cancer.
