On 19 June 2012 Mr. Justice Simon at Southwark Crown Court sentenced James Sanders, a director of the former UK brokerage firm Blue Index, to four years’ imprisonment after pleading guilty to 10 counts of insider dealing. His wife, Miranda Sanders, was sentenced to 10 months’ imprisonment, with a fellow director of Blue Index, James Swallow, also imprisoned for 10 months.  

The sentence handed to James Sanders was the longest custodial sentence ever imposed for insider dealing in the UK and represented the culmination of a large-scale, multi-jurisdictional investigation co-ordinated between the UK Financial Services Authority, the U.S. Securities and Exchange Commission, the U.S. Department of Justice, and the U.S. Federal Bureau of Investigation.  


Blue Index was a London brokerage (shut down by the FSA in 2009) which specialised in Contracts for Difference (CFDs). James Sanders and James Swallow were directors of Blue Index. Between October 2006 and February 2008, Mr. Sanders and his wife, Miranda, traded on inside information originating from the United States. The information related to pending mergers and acquisitions involving companies listed on the NYSE and Nasdaq indices. As well as trading on inside information himself, James Sanders disclosed it to others, including James Swallow, and encouraged clients to trade in CFDs on the basis of that information. The resulting gains to the three offenders totalled approximately £1.9 million, while clients of Blue Index generated profits of some £10.2 million.

The ultimate source of the information was Arnold McClellan, who was then head of mergers and acquisitions advisory in the San Francisco office of a large accounting firm. Inside information was passed onto James and Miranda Sanders by Mr. McClellan’s wife, Annabel McClellan, who is Miranda Sanders’ sister. Annabel McClellan reached a settlement with the SEC in the U.S. under which she received a U.S.$1 million penalty and was sentenced to 11 months’ imprisonment in the U.S. (for obstructing an SEC investigation into the insider dealing).  

On 28 May 2012, Mr. Sanders pleaded guilty to 10 counts of insider dealing, while Miranda Sanders pleaded guilty to five and James Swallow to three.  


Although no new issues of law arise from this case, the sentencing marks a new high for the FSA in its more active approach to pursuing insider dealing and other market abuse, its willingness to undertake large, cross-border investigations, and a possible trend towards more severe penalties.

FSA’s “tough approach” to market abuse

Recent years have seen a step change in the FSA’s approach to investigating and prosecuting insider dealing and market abuse. Dawn raids in a series of insider dealing investigations in the last few years (37 in 2009, 36 in 2010 and 21 in 2011) provided very visible evidence of the FSA’s more hardline approach. As Margaret Cole, then FSA director of enforcement and financial crime, noted in January 2011, “our strategy of a tough approach to insider dealing—and, in particular, demonstrating that we are prepared to fight difficult criminal prosecutions to trial—is paying off”. The conviction of James and Miranda Sanders and James Swallow bring the total number of FSA insider dealing convictions to 14.

The sentence handed down to James Sanders is the largest ever imposed in respect of insider dealing in the UK. Significantly, it followed a plea of guilty for an offence for which the maximum tariff is seven years’ imprisonment. It was also accompanied by a five year disqualification as a director.

This was also the first time the spouse of the main offender received an immediate custodial sentence (in a previous insider trading case involving spouses, the wife of the main offender received a suspended sentence). This in itself reflected the seriousness of the behaviour of Mr. and Mrs. Sanders given that they have young children.

The custodial sentences against the Sanders will be accompanied by confiscation orders. Mr. Swallow has already agreed to pay £440,000 by way of confiscation.

In passing the sentences, Mr. Justice Simon highlighted the “deliberate and calculated acts of dishonesty” and the significant gains made. The FSA’s comments also reinforce the hardline message. Tracey McDermott, acting director of enforcement and financial crime division, said:

“This was a case of systematic abuse by approved people of their privileged position in the market—we are determined to stamp out such abuse. Our tough, coordinated approach to insider dealing and our commitment to taking on difficult criminal prosecutions has really begun to pay off.

These three individuals funded very comfortable lifestyles by cheating the system and other honest investors. No doubt as they prepare to spend their first night behind bars they will be reflecting on the consequences of their greed. Others who might be tempted to do the same should be in no doubt about our continued commitment to use all of the tools at our disposal to tackle those who abuse the market.”

Extensive cross-border investigation

The investigation which led to the convictions was extensive: estimated to have cost in the region of £2.5 million. FSA investigators devoted substantial resources to reviewing evidence and tracing the source of the inside information, gathering and reviewing large numbers of documents and telephone recordings. The extent of the investigative effort devoted to the FSA’s case illustrates its focus on insider trading offences.

However, it is the cross-border element of the investigation and enforcement that is most significant. The prosecution in the UK was coupled with action taken against Annabel McClellan in the U.S., and reflected what the FSA described as “real groundbreaking work” with the U.S. authorities. Given the speed at which information—including inside information—now moves around the world, and the relative ease of trading on distant markets, more cross-border co-ordination and enforcement by regulators is an inevitable development. Indeed, the FSA was keen to emphasise the levels of international cooperation in this case.

Market Abuse

The FSA’s success in criminal prosecutions has been mirrored in its civil actions relating to market abuse. In a speech on 2 July 2012, entitled “Credible Deterrence: Here to Stay”, Tracey McDermott highlighted one recent case (involving Greenlight Capital Inc.) in which the FSA “not only took action against David Einhorn, who directed the trading, but also against Alexander Ten Holter, the compliance officer who failed to recognise the risk that inside information had been disclosed, Andrew Osborne of Merrill Lynch who had improperly disclosed information, and Casper Agnew of JP Morgan who failed to recognise and report the trading as suspicious. Any one of those individuals could, by acting properly and complying with their regulatory obligations, have done something about the abuse. None of them did so. All of them ultimately paid a price for that inaction.” The FSA is therefore taking an expansive approach to those whom it will pursue.


The sentences in the Sanders case will bolster the FSA in its pursuit of those engaged in insider dealing and market abuse. There are currently ten defendants standing trial and a further five defendants are due to stand trial in the next twelve months. The combination of the FSA’s increasing preparedness to take such cases to trial and the development of closer links with overseas regulators reinforce the need for care when handling potentially market sensitive information.