Two senior financial market professionals and a hedge fund employee were among six men arrested in Britain today on suspicion of being involved in a sophisticated and long-running insider dealing ring.
The Financial Services Authority (FSA) said a squad of 143 officers and the Serious Organised Crime Agency (SOCA), a special police unit, raided 16 residential and business addresses where they seized documents and computers.
"It is believed that the City professionals passed inside information to traders (either directly or via middlemen) who traded on this information and have made significant profits as a result," the FSA said in a statement. London's financial district is known as the City.
The FSA said the two senior professionals worked at "leading City institutions".
It declined to divulge any further details about the operation, the largest against insider trading to date. The investigation began in late 2007 as part of the regulator's attempt to clamp down on market abuse, fraud, and poor systems and controls.
"This is an ongoing investigation and when we have more information we will make it public," an FSA spokesman said.
Nathan Willmott, a partner at law firm Berwin Leighton Paisner, said this case was likely to have hinged on covert surveillance of the suspects to secure evidence, which was a "significantly more advanced approach" than used in the past.
Previously, the FSA has relied on whistleblowers to help put together insider dealing cases, which are notoriously hard to prosecute.
"The FSA is striking to maintain the good name of the City," said Simon Morris of law firm CMS Cameron McKenna. "But the proof of the striking is in the jailing, and we will have to wait several years before we know whether (the) FSA has found a smoking gun or a damp squib (in this case)."
The FSA has toughened up its enforcement policy after years of being criticised for not doing enough to stop market abuse. In 2009, it levied a record level of fines and launched its first two successful criminal prosecutions.
Since 2008, it has carried out five sets of arrests on suspicion of insider dealing and secured five prison sentences, including the jailing of Malcolm Calvert, a former partner at Cazenove -- known as the Queen's stockbroker. One of the five sentences was suspended, however.
The FSA, which is currently prosecuting three more insider dealing cases, last week urged financial institutions to tape traders' mobile phone conversations. Institutions already have to record fixed-line telephone conversations.