On March 11, Malcolm Calvert was sentenced to 21 months in prison, having been found guilty on five counts of insider dealing the previous day. Mr. Calvert, who retired as a market maker and partner of Cazenove (a leading City of London firm) in 2000, was charged with insider dealing based on the receipt of confidential price-sensitive information about planned takeovers from an unnamed primary insider at Cazenove. The guilty verdict related to purchases of shares in three issuers out of a total of six relating to which allegations were made concerning purchases between April 2003 and April 2005.
Mr. Calvert’s friend, Bertie Hatcher, agreed to place orders on Mr. Calvert’s behalf in return for a one-third share of the profits. Purchases were made of shares of a total value of about £500,000 (approximately $750,000) in Vernalis Group plc, Johnston Group plc and South Staffordshire plc, and a profit of about £104,000 (approximately $157,000) was made by selling the shares after takeover announcements were made shortly after each purchase. Mr. Calvert was found not guilty of alleged insider dealing relating to Mr. Hatcher’s purchases of shares of three other issuers. In each case Cazenove had acted as an advisor to the issuer.
Mr. Hatcher cooperated with the UK Financial Services Authority (FSA) and agreed to give evidence against Mr. Calvert. Ultimately, he did not give evidence in court for health reasons. He accepted a fine of £56,098 (approximately $85,000) representing disgorgement of his share of the profits made with respect to all six issuers. The FSA proceeded against him under its civil powers rather than making him the subject of criminal proceedings. The FSA issued a Final Notice with respect to Mr. Hatcher after the Calvert verdict was announced.The FSA has had powers to proceed against insider dealing in 2001. It brought its first two criminal prosecutions in 2009; the Calvert case was its third successful criminal prosecution.
The FSA has emphasized that it will not hesitate to use its criminal enforcement powers. In connection with the Calvert verdict, Margaret Cole, Director of Enforcement and Financial Crime at the FSA, said: “The guilty verdict is a shot across the bow for any city workers who may be tempted to trade using insider knowledge. Our message is simple: if you take part in such activity, you run a very real risk of the FSA taking criminal action against you.”
Mr. Calvert will return to court on April 23 for a confiscation and costs hearing. No charges have been brought against Cazenove or any of its current employees, and in a statement the firm pointed out that no breach of its systems or controls was identified by the FSA during its four-year investigation of the insider trading allegations.
To read the Hatcher FSA Final Notice, click here.