This month, the FCA secured the conviction of two individuals accused of an £8 million insider dealing conspiracy by the FCA following its “largest and most complex insider dealing investigation” (widely known as the “Operation Tabernula” case). The convictions have been hailed as a victory by the FCA, which has focused in recent years on developing a more robust reputation amongst global regulators. However, there were a total of five defendants in the case, three of whom were acquitted. The result is therefore something of a mixed victory.
The FCA has spent 8 years and some £14 million investigating the matter, together with the National Crime Agency which supported the FCA by providing additional surveillance capability which proved key in gathering important evidence. The convicted individuals were Martyn Dodgson, a senior investment banker, and Andrew Hind, a Chartered Accountant. Dodgson and Hind were sentenced to four and a half years and three and a half years imprisonment, respectively. Mr Dodgson’s sentence is the longest ever handed down for insider dealing in England: the maximum sentence is seven years and the previous highest sentence was four years.
The FCA’s Director of Enforcement and Market Oversight, Mark Steward has commented that the case demonstrates that “insider dealing is ever more detectable and provable. And this case shows lengthy terms of imprisonment, not profits are the real result.” Steward has also said that “we [the FCA] need to look beyond the opportunistic insider dealers who have been perhaps the subject of cases in the past. We need to look at the potential for our markets to be undermined by systematic and organised crime… and we are doing exactly that”. However, whether insider trading will remain a priority remains to be seen. The length and cost of the investigation, and the mixed outcome, is something that the FCA will no doubt be assessing internally as it weighs up just how much in resources is required to see complex criminal insider trading investigations through to trial.
Commentators have widely noted that the (albeit mixed) success of the FCA in this regard contrasts with the difficulties currently being faced by their US counterparts: in October 2015 the US Supreme Court upheld a New York federal appeals court ruling that had reversed the convictions of two hedge fund managers. That decision significantly narrowed the definition of the offence of insider trading as the court held that the individuals concerned were too remotely connected to the original leak of insider information and may not have realised that it was improperly obtained. Over a dozen convictions for insider trading have been overturned as a result. However, the SEC continues to have success with its civil insider trading regime – for example its recent investigation into professional golfer Phil Michelson resulted in his agreement to pay back to the SEC the c.$1 million he made through alleged insider trading.
With no other FCA insider trading cases due to reach trial in the near future, it remains to be seen where the FCA will turn next.