An insider-trading probe that could become the UK’s biggest linked to the crime has resulted in three employees at major banks being arrested, a recent report states. The arrests occurred in recent months, Bloomberg reported, citing two sources and adding that more arrests were planned. The probe involves the UK’s Financial Conduct Authority (FCA), which is working with the National Crime Agency (NCA), the news agency reported.
A government report on the so-called Panama Papers scandal made an insider-trading probe public last week. “The briefing said that a task force, set up to investigate leaked documents from a Panama law firm had ‘identified a number of leads relevant to a major insider-trading operation’ led by the FCA and supported by the NCA,” Bloomberg reported. The FCA declined to comment, while the NCA declined to immediately comment. About six months ago the FCA ended a major trial in an insider-trading case that was named Operation Tabernula.
In a case brought by the Financial Conduct Authority (FCA), Martyn Dodgson, a senior investment banker, and Andrew Hind, a Chartered Accountant, have today been sentenced at Southwark Crown Court to 4.5 years and 3.5 years imprisonment, respectively, having been convicted of conspiring to insider deal between November 2006 and March 2010. Dodgson’s sentence is the longest ever handed down for insider dealing in a case brought by the FCA.
Confiscation proceedings will also be pursued against both defendants.
This investigation was conducted in partnership with the National Crime Agency.
In sentencing Dodgson and Hind the trial judge, His Honour Judge Pegden, remarked that their offending was ‘persistent, prolonged, deliberate, dishonest behaviour.’
Mark Steward, Director of Enforcement and Market Oversight, said
‘This case involved serious offending over a number of years, conducted in a sophisticated way using deliberate techniques to avoid detection. Dodgson was an approved person who was entrusted by his employer with sensitive and valuable information. He betrayed that trust by exploiting the information for his own benefit, conspiring with Hind to deceive the market
‘Insider dealing is ever more detectable and provable. And this case shows lengthy terms of imprisonment, not profits are the real result.’
Oliver Higgins, National Crime Agency Branch Commander, said: ‘Dodgson and Hind tried to prevent us from uncovering their insider dealing by using unregistered mobile phones, encoded and encrypted records, and transferring benefit using cash and payments in kind.
‘The NCA were able to support the FCA by carrying out surveillance and providing niche capabilities, including the deployment and monitoring of a listening device that recorded key conversations.
‘We will continue to work with our partners to pursue and prosecute anyone who seeks to undermine financial systems, abuse markets, and poses a serious economic crime threat to the UK.’
The guilty defendants
Martyn Dodgson (5 October 1971) – during the period covered by the indictment Dodgson was employed by Morgan Stanley, Lehman Brothers and Deutsche Bank. He worked at Morgan Stanley as a Vice President in Global Capital Markets until January 2007, and then at Lehman Brothers as an Executive Director in the European Investment Banking Division from July 2007 to September 2008. He moved to Deutsche Bank in October 2008 as a Director in the Corporate Broking Department and was later promoted to Managing Director. Dodgson was Financial Services Authority (FSA) approved throughout the period.
Andrew Hind (16 April 1960) – is a businessman, a property developer and a qualified Chartered Accountant.
Overview of the facts
Dodgson and Hind, who were close personal friends, agreed to deal secretly, sometimes on the basis of inside information.
Dodgson sourced inside information from within the investment banks at which he worked, either through working on transactions himself or through being able to glean what his colleagues were working on. He passed on this inside information to Hind who then affected secret dealing for the benefit of Dodgson and himself.
The defendants put in place elaborate strategies designed to prevent the authorities from uncovering their activities. These included the use of unregistered mobile phones, encoded and encrypted records, safety deposit boxes and the transfer of benefit using cash and payments in kind.
The FCA relied on five acts of insider dealing to prove this conspiracy. The five acts of dealing related to the following companies:
- Scottish & Newcastle plc in October 2007
- Paragon Group of Companies plc in July 2008
- Just Retirement plc in October 2008
- Legal & General plc in February 2009
- BSkyB plc in March 2010
In many other instances of trading effected by Hind during the Indictment period, Dodgson or his employer was advising or connected with the company traded or with a company party to a relevant corporate transaction.
The Operation Tabernula investigation
This has been the FCA’s largest and most complex insider dealing investigation. The offending in this case was highly sophisticated and took place over a number of years. The investigation (conducted in partnership with the National Crime Agency) was demanding and time-consuming. Investigators, forensic accountants, lawyers, markets experts, intelligence analysts and digital forensic specialists pooled their skills to unravel the conspiracy. This was achieved through painstaking analysis of trading, financial and communications data, documentary evidence from the investment banks, and the material seized during searches under warrant. Surveillance was also deployed.
These two convictions – alongside those of Paul Milsom, Graeme Shelley and Julian Rifat – brings to five the number of convictions secured in the Operation Tabernula insider dealing investigation.