When Spread Betters' 'Luck' Ran out; City Comment

Article excerpt

Byline: ANTHONY HILTON

THE convictions for insider dealing handed down at Southwark Crown Court on Friday mark a significant victory for the Financial Services Authority because the ring of people caught and jailed for up to five years were using spread bets rather than direct purchases of shares to make their money.

Central figure in the scam was a man in the compliance department of investment bank CSFB whose job it was to make sure that one part of the bank did not inadvertently deal in something where another part of the bank had inside information. He was, therefore, in the key position to know when something was likely to happen.

Armed with this near-certain knowledge, he then alerted a circle of friends on the outside with whom he has no apparent connection to place bets with spread betting groups such as City Index on movements in the relevant shares.

They bet heavily, and often only hours before the event, frequently making [pounds sterling]30,000 or more - with the added advantage that, as betting wins, their profits avoided capital gains tax.

CSFB never worked out what was going on. Rather, it was the spreadbettingfirms, surprised at the "luck" of these punters and the timeliness of their information, that finally alerted the FSA and set the probe in motion - but only after the scam had been running for several years.

Even then, the case was not clearcut because when they were originally drafted, the insider dealing laws referred to dealing in securities on recognised markets and therefore failed to cover spread bets.

However, they were later amended to include actions in the spread betting market and there was a sufficient number of offences after that time to make the charges stick.

So the culprits were caught but not before they made serious money.

The actual cases the police bothered to prove in court ran to tens of thousands of pounds but the body of evidence amassed during the investigation pointed to very many more instances and involved most of the spread betting firms to some degree.

These cases were not included in the charges so the trial could be kept simple and manageable, but the profits on the cases in which the team was allegedly involved ran to [pounds sterling]2 million.

Review risk

IT is hard to imagine a situation where good management and good governance are not the same or at least complementary, Tony Watson, chief executive of pension fund manager Hermes, said today. …

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