March 7, 2013 / 2:01 PM / 5 years ago

UPDATE 2-Former London trader gets two years for insider dealing

By Estelle Shirbon

LONDON, March 7 (Reuters) - Former share trader Paul Milsom was jailed for two years on Thursday for insider dealing, the first sentence to come out of the biggest investigation into the crime by Britain’s Financial Services Authority (FSA).

Milsom, 45, who was a senior equities trader at Legal & General, had pleaded guilty. He was ordered to pay 245,000 pounds, the total profit he made from insider dealing.

He will serve half his sentence before being released on parole.

Six others have been charged as a result of the FSA’s Operation Tabernula, which began in March 2010 with coordinated dawn raids in which seven employees of institutions including Deutsche Bank and Moore Capital were arrested. A total of 10 arrests have been made as part of the investigation.

Passing sentence on Milsom, judge Jeffrey Pegden said the main impact of insider dealing was a “subversive effect on market confidence”.

Milsom cried in the dock as his lawyer, Simon Ray, described him as a hard-working man who had left school at 16 and worked his way up from a first job as an office junior.

Milsom had pleaded guilty to one charge that covered 28 separate instances of passing insider information to Graeme Shelley, then a broker at Novum Securities, between October 2008 and March 2010.

Shelley has also been arrested and charged as part of Operation Tabernula but has indicated he would plead not guilty.

Milsom admitted he would tip off Shelley before executing large trades that had the potential to move a market. Shelley would then place either spread bets or contracts for difference intended to gain from the market move, and the pair would split any profit.

Contracts for difference are derivatives that allow traders to bet on stocks without having to buy the stocks themselves.

The 28 deals made by Shelley based on tips from Milsom covered 14 stocks including Tui Travel and Invensys. The profit split was roughly 40 percent to Milsom and 60 percent to Shelley.


Summarising the evidence just before sentence was passed, prosecutor Neil Saunders said Milsom tried to hide his tracks by using unregistered pay-as-you-go phones with different SIM cards to call Shelley.

The pair made over 400,000 pounds from their arrangement, of which Milsom was paid about 164,000 in cash.

After his arrest, Milsom volunteered information to FSA investigators about a separate insider dealing arrangement he had with another independent broker between April 2008 and April 2009.

He revealed details of 15 transactions involving five stocks, resulting in a total profit of just over 160,000 pounds of which Milsom received 81,000.

The name of the other broker was not disclosed in court.

The 245,000 pounds Milsom was ordered to pay was the total he had received from the 28 Shelley deals as well as the other 15 transactions.

The judge said he had taken into account several mitigating factors in passing sentence on Milsom. These included the ex-trader’s early guilty plea and evidence that he was “loyal, hard-working and hitherto honest”.

Operation Tabernula is part of a wider crackdown on market abuse by the FSA, which was criticised in the past for a light-touch style of regulation exposed as inadequate by the financial crisis.

Prior to Milsom’s guilty plea, the FSA had already secured 21 convictions for insider trading.

It said Milsom’s case should serve as an example to others working in financial services.

“His personal greed will have cost him his reputation, his career and his liberty. Those who think there is easy money to be made from insider dealing should think again,” said Tracey McDermott, director of enforcement at the FSA.

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