LONDON (Reuters) - Britain’s market watchdog has chalked up its first criminal convictions for cross-border insider dealing after a transatlantic effort to bring a husband and wife team to court.
The Financial Services Authority (FSA) said James and Miranda Sanders, along with colleague James Swallow, had admitted insider dealing by profiting from information about U.S. mergers and acquisitions obtained from a family connection in the United States.
The information was used to trade contracts for differences (CFDs) in Britain and generate profits of more than 12 million pounds for perpetrators and their clients, the FSA said.
“James and Miranda Sanders orchestrated a long-running, sophisticated and very profitable scheme. They no doubt thought that using information about U.S. deals would make it more difficult for us to pursue,” said Tracey McDermott, the FSA’s acting director of enforcement and financial crime.
The FSA worked with its counterpart in Washington, the Securities and Exchange Commission, the U.S. Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI).
James Sanders and Swallow were co-directors of Blue Index, a now-shut brokerage that specialised in contracts for difference (CFDs) that bet on which way the price of an underlying financial instrument will move.
James Sanders had already pleaded guilty to 10 charges of insider dealing, his wife pleaded guilty to five charges, and Swallow admitted three charges.
They will be sentenced on June 19.
On Monday two former Blue Index employees, Christopher Hossain and Adam Buck, were acquitted of insider dealing charges at Southwark Crown Court.
“I never had the slightest doubt that I would be fully exonerated. The reputational damage that this case has caused is incalculable and the financial costs have been huge,” Hossain said in a statement released by his lawyer.
The prosecution outlined a transatlantic family pact.
It said Arnold McClellan, senior partner at a large U.S. accounting firm, was “insider” to a number of corporate deals in U.S. securities listed on the New York Stock Exchange and Nasdaq market.
The prosecution said Arnold McClellan, who is Miranda Sanders’ brother in law, or Miranda’s sister, Annabel McClellan, leaked information about the U.S. corporate deals to Miranda and James Sanders in Britain.
Trades based on this information were transacted between October 2006 and February 2008, according to prosecutors.
James Sanders also passed on information to James Swallow, and encouraged Blue Index clients to trade in CFDs on the basis of the inside information, the FSA said.
Annabel McClellan took all the blame for passing on inside information to her UK accomplices and paid a $1 million fine to the SEC. She has also pleaded guilty to a DOJ charge and is now serving an 11-month prison sentence without parole.
“Sanders and Swallow abused their position as approved persons. They used Blue Index, an authorised firm, as a vehicle for their criminal conduct,” McDermott said.