Was Operation Tabernula a success?

Vivienne Tanchel, barrister at 2 Hare Court, explores Operation Tabernula and suggests it was successful due to its sheer size and the impressive use of surveillance techniques more commonly associated with other types of criminality.

Original news

Two convicted of insider dealing in landmark case, LNB News 10/05/2016 74

Two men, including a senior investment banker and a chartered accountant, have been convicted of conspiring to insider deal between November 2006 and March 2010 following a case brought by the Financial Conduct Authority (FCA).

What is the background to the enforcement action arising from Operation Tabernula?

The background to Operation Tabernula was the reporting of a significant number of suspicious transactions by City brokers. The investigation commenced in 2007 and had four strands to it. The FCA and National Crime Agency (NCA) combined their skills to pursue the investigation culminating in a series of dawn raids and arrests in 2010.

The suspicious transaction reports revealed a number of transactions that appeared to coincide with relevant corporate activity—however, they did not reveal the source of the information. Painstaking investigation led the authorities to the insiders.

What did the FCA say about its investigation and the breaches?

The FCA has claimed the outcome of the Operation Tabernula trial as a great success. It has highlighted that the standard of proof in criminal trials is high, therefore the chances of not getting the outcome the evidence would suggest is high too. It has also observed that the evidence it relied upon was very technical and required it to put together a ‘patchwork’ of information and, therefore, even to get a single conviction is a success. The FCA has also commented that although both Mr Dodgson and Mr Hind went to great lengths to conceal their activities, they underestimated the tenacity of the investigation team. Interestingly, the FCA has publicly commended the City brokers for maintaining the confidentiality of the investigation prior to the arrests in 2010.

Why is this enforcement particularly noteworthy?

It is very difficult to prove insider trading because there is rarely any direct evidence of the offence. Those investigating this type of offence must review transactions, communication and market announcements to discern and prove a pattern of trading that shows that the suspicious transactions are predicated on confidential price sensitive information.

This enforcement is particularly noteworthy because of its sheer scale. It involved:

  • four separate strands of investigation and vast volumes of data, including in excess of 100 trading accounts
  • 500,000 entries of telecom data information
  • more than 500 hours of telephone conversations
  • 600 digital devices, and
  • 5 terabytes of digital information

Furthermore, it was the first investigation of its type in which the NCA was involved and relied on surveillance techniques more commonly associated with other types of criminality, such as drug dealing. The cost of the investigation and prosecution was £14m.

What do these cases tell us about the way in which the FCA and NCA are investigating suspected insider dealing offences?

Prior to Operation Tabernula, FCA investigations into insider trading were focused on people or groups of people who’s trading was suspicious. Operation Tabernula represents a significant advance in the manner in which investigations are being conducted in that the FCA looked at a number of different traders and insiders in one investigation. Those tried at Southwark Crown Court were not the only defendants involved, Julian Rifat, who worked at Moore Capital, Graeme Shelley, who worked at Novum Securities and Paul Milsom, who worked at Legal and General, had all previously pleaded guilty.

The scale of the investigation, as well as the cooperation between the FCA and the NCA, indicates a much more robust approach, showcasing the FCA’s willingness to flex its muscles to prove that it takes manipulation of markets in the UK seriously. However, it is noteworthy that since this investigation commenced in 2007, other alleged irregularities, such as the manipulation of LIBOR and the investigation into the foreign exchange market seem to now be taking precedence. It is unclear whether the FCA will have the appetite to conduct an enquiry of this magnitude in the future.

What lessons can defence lawyers learn from this?

This is the first insider trading investigation in which the NCA and the FCA cooperated. This is significant because defence lawyers will now be alive to the fact that investigatory techniques, such as the use of surveillance and surveillance devices may now be deployed. This was the first insider-trading enquiry in which surveillance was used. Furthermore, those who practice in this area will now be aware that the FCA is prepared to commit enormous resources to investigating these offences and is no longer reluctant to pursue senior City personnel.

What practical steps should defence lawyers take when representing clients who are facing investigation for insider dealing. Are there any pitfalls to avoid?

Defence lawyers involved in these types of cases will keep at the forefront of their minds that by the time their clients are arrested, they are more likely than not to have been under investigation for a considerable period. This is significant when advising them on what position to adopt when they are first being interviewed.

Interviewed by Lucy Trevelyan.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

 

 

 

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