Six arrested over City insider dealing

Three senior City figures were among six men arrested in dawn raids yesterday as part of the biggest ever crackdown on insider dealing.

One employee of Deutsche Bank, another from BNP Paribas and a City professional at the hedge fund Moore Capital, were among those arrested in what is being described as an unprecedented attempt by the City regulator to close down a "sophisticated and long-running insider dealing ring".

As part of its battle to clean up the City, the Financial Services Authority swooped in London, the south-east and Oxfordshire in its first joint operation with the Serious Organised Crime Agency. Around 143 police officers and FSA staff were required to conduct the raids, which the authority described as its "largest-ever operation against insider dealing".

Those arrested were being held at police stations in London, Kent and Oxford and are suspected of passing inside information to traders – either directly or via middlemen – who traded based on this information and have made significant profits.

Insider dealing takes place when individuals trade on price-sensitive information not widely known in the market – such as a takeover bid – and often obtained illicitly. It is a criminal offence but has been notoriously difficult to prosecute despite the FSA's own calculations that there are "suspicious price movements" in 29% of takeovers.

Lawyers said that the FSA was now employing a new, tough approach in its attempt to end such abuses under which ordinary shareholders lose out because they are not able to make quick profits in the same way as the "insiders".

"This isn't quite a US-style dragging people off the trading floor but it's going that way," said Simon Morris of law firm CMS Cameron McKenna. "The FSA is striking to maintain the good name of the City. But the proof of the striking is in the gaoling, and we will have to wait several years before we know whether FSA has found a smoking gun or a damp squib."

In the past the FSA has relied on whistleblowers rather than use methods deployed in the US to tap phones and covert surveillance and wants firms to start recording employees' mobile phones, not just those made from their desk phones.

Hector Sants, the FSA chief executive, has warned the City to be "afraid" of the regulator and last week set out plans for a hiring spree to help bolster its investigations of insider dealing.

As he launched the FSA's business plan, Sants said this was the "key year" to demonstrate the FSA was serious on cracking down on such City crimes. There would be a "significant" increase in criminal cases and enforcement actions, he said, reiterating his view that the amount of insider dealing in the City was "unacceptable".

The FSA has been focusing on this area since 2008, with this the fifth set of arrests. Four people have been jailed – and another person received a suspended sentence – while three other insider-dealing cases are set for trial.