One player at the centre of the Marks & Spencer share-trading brouhaha seems to hold all the cards. But it is not Philip Green, the billionaire yearning for control of the high-street retailer, or Stuart Rose, M&S's chief executive. It is the Financial Services Authority.
The City watchdog thrust itself into the spotlight last week when it took the unusual step of confirming it was investigating share dealing at M&S. Unusual, because the FSA normally only reveals that it has been probing so-called "market abuse" suspicions once a conviction has been secured.
Says a spokeswoman: "It is exceptional that the FSA would make this kind of announcement and would only do so in regards to a firm or company, rather than an individual. But it is such a high-profile case and people rightly expected us to be looking at it." Mr Green and Mr Rose both announced that they would be interviewed by the watchdog; the in- formation did not come from the FSA.
For most observers, the affair is just another twist in the bitter battle for M&S. For the FSA, however, it could prove crucial to shoring up the regulator's lacklustre reputation.
Insider trading is notoriously hard to prove and this is one of the unofficial reasons why the Financial Services and Markets Act 2000, which came into force in December 2001, was introduced. The Act gave the FSA far-reaching powers to investigate and penalise "market abuse", which is a civil rather than criminal offence but also a broader term than "insider trading" and, crucially, easier to prove. People can be sued for creating a false or misleading impression, distorting markets or misusing information - such as buying shares in a company that they privately know will be the subject of a takeover bid.
Yet ask the FSA for a list of people convicted under the Act and you will be disappointed. There have been a handful of market abuse prosecutions but not one successful insider trading case. And the pressure is on the watchdog to get a big scalp.
"The FSA is keen not to pursue only smaller cases, so a lot of pressure is on it to get a high-profile case," says one former FSA director.
Insider trading, on various scales, is generally thought to be fairly widespread. But how do you prove it? Jonathan Herbst, a partner at law firm Norton Rose and another former FSA employee, says: "You can prove that a trade took place, that's easy. What's hard to prove is whether there was passing of information or whether it was just legitimate market rumour.
"There are always rumours flying about - that's part of the way markets work. But it's hard to disentangle how much of that is legitimate pub talk and how much is information."
Hard evidence is also scarce. As the former director at the regulator says: "The FSA has to prove possession of information and then use of that information. People don't tend to write things down if they are going to do insider trading." He believes the Financial Services and Markets Act is just "playing with the edges".
"Unless you are going to assume that whenever someone who's close to a company trades, it's insider trading, it's going to be difficult to prove.
"As soon as we see individuals trading in a timely fashion, that does raise question marks. But it only raises them. If you establish that a close friend of a company director had a meeting two days before, that might look suspicious. But if they are such close friends that they meet every couple of days ...? It's tough."
The FSA spent most of last week interviewing interested parties about M&S; the watchdog can compel people to attend, though few refuse. Along with Mr Green and Mr Rose, the regulator interviewed Michael Spencer, the chief executive of City broker Icap, who bought two million M&S contracts for differences - a form of financial instrument - the day after a meeting with Mr Rose. Further meetings are likely to be carried out this week with other people.
When its investigations are complete, the FSA will piece together all the circumstantial evidence - phone logs, emails, share trades, when trading accounts were opened and so on - and decide whether to launch a case. And while the pressure may be on to claim a big scalp, it is going to have to be sure of its evidence before proceeding.
As Mr Herbst says: "You really have got to have your ducks in a row to launch a prosecution [for insider trading]. It would be surprising, when they do bring a case, if they don't feel they have a pretty clear-cut one, especially as it will be funded by the financial institutions."
So any reticence would be understandable: as the City provides the FSA's financial backing, it will not take kindly to seeing its money wasted on collapsing cases. Indeed, mutterings have already been heard about the trial of Paul Davidson. Better known as "The Plumber", Mr Davidson was fined £750,000 for market abuse but his appeal tribunal ran into trouble recently when it emerged that an FSA enforcement officer, Christopher Fitzgerald, had been discussing the case with his neighbour, a tribunal member. Mr FitzGerald resigned and the tribunal dismissed itself.
That is the problem that the FSA, and indeed any watchdog, faces. Not only do they have to police their field, they have to be seen to be policing it efficiently. Any failures will raise questions about how the City's money is spent.
Most commentators argue that, from a legal standpoint, three years is not that long a period when it comes to bedding down new legislation. They also point out that London has some of the world's most-respected and best-regulated markets.
Some also believe that proving insider trading should be tough. As the ex-FSA director says: "I'm not sure anything needs to be changed. Prosecutors are far too quick to say there's a problem with the underlying legislation. Insider trading may be hard to prove, but as you can go to prison for seven years, that's probably how it should be."
And most believe that, eventually, the FSA will get its man in an insider-trading case. Whether that will be a member of the City's upper echelons is, at this point, anyone's guess.
'Extraordinary', 'bizarre', 'naive', 'undermining'... but Rose's big deal is just a sideshow in the City
"For a man who is supposed to be worth £24m, what is the point of buying 100,000 shares and risking his entire reputation? It's extraordinary." So says one bemused shareholder about Stuart Rose's decision, for whatever reason, to splash out on 100,000 Marks & Spencer shares.
"Naive", "edging towards sharp practice" and "it does not look good" are just a few other remarks from City insiders. Because while few genuinely believe that anything illegal happened on 7 May, when Mr Rose now infamously bought the shares following a telephone conversation with Philip Green, most agree it was a foolish step that has dented his standing in the City.
Says one retail analyst: "He has undoubtedly tarnished his reputation. I don't think he will be found guilty of any irregularity, though there are questions about whether he made a better-educated guess than most people could have about what would happen to M&S.
"But the honeymoon period is going to be slightly reduced. In a year's time, if there aren't tangible signs of turnaround, the market is not going to be as patient as it might have been."
Paul Mumford, a senior fund manager at Cavendish Asset Management, a small shareholder in M&S, adds: "It has undermined the case a little bit because it seems bizarre somebody could be as naive as that. It's definitely not good publicity."
It is also a blow for Mr Rose as his trump card in the battle for control of M&S was simple: he is not Mr Green. Likewise, the billionaire might be enjoying the irony since his previous attempt to take over M&S came crashing down amid accusations of share dealing in his camp.
Yet neither side is going to come out of the affair covered in glory. Mr Rose and his friend, Michael Spencer, the boss of Icap, both figure in the investigation, while from the Green camp, Scottish entrepreneur Tom Hunter has been hauled on to the news pages. So have the billionaire Reuben brothers, who straddle both camps. The FSA investigation could also drag on for months.
However, most are hopeful that, once the dust settles, the City will get back to the matter at hand. Rupert Trotter, who advises fund managers at Isis Asset Management on retail investments, says: "This isn't about two individuals, it's about shareholders realising the correct share price for what M&S is worth. And that's about what the two individuals can deliver."
He also argues that Mr Rose's case has been strengthened by the speed with which the board came out in support of its chief executive. "They believe he did nothing wrong and knowing those people, I know no reason why I shouldn't believe them."
It is also generally accepted that what makes great headlines is not necessarily the heart of the matter. One shareholder, who prefers not be named, says: "There's a lot of noise going on but the market is presuming he didn't do anything. I would still choose Stuart Rose over Philip Green."
Another analyst goes a step further: "This is such a storm in the press but it makes not the slightest bit of difference about his ability to run M&S. That's the important thing. Can Rose engineer a turnaround? What will that make M&S worth? And what will Philip Green do?"
A week tomorrow, Mr Rose will unveil his long-awaited strategy for the ailing retailer. Much has already been leaked, including last week's plans to tackle suppliers and cut costs from the chain. This was a crucial twist - one of Mr Green's selling points is his strong and efficient relationships with suppliers - and no doubt intended to deter any wavering sellers out there from playing into the billionaire's hands.
But the 12 July announcement will help focus the minds of City commentators and shareholders on both sides of the Atlantic. Mr Green is expected to have made a revised offer by then, giving shareholders a clear choice: stick with Mr Rose and put your faith in his turnaround strategy and projected value for the retailer, or go with Green, where you can either take the cash or back his own turnaround via an equity stake.
Except, of course, should the unthinkable happen - and someone else decides to wade in. "It's still a game of poker," says Mr Mumford. "No one will come in until they hear what Rose is planning, see the property valuation and hear Green's response. But then they could easily target a bid should they think there's still value in it."
Various names are flying around, including such rumour stalwarts as US retailing giant Wal-Mart and New York buyout firm Kohlberg Kravis Roberts. And that, should it happen, would scupper just about everyone's well-laid-out plans - regardless of all the accusations of dodgy dealings, dirty tricks, smear campaigns and oneupmanship between two warring camps.
PHONE BUGS, STAKEOUTS AND SMEAR CAMPAIGNS... THE DIRTY FACE OF TAKEOVER BATTLES
Corporate takeovers are rarely well-mannered affairs, but allegations last week that Stuart Rose's mobile phone records had been accessed and his wife's mail tampered with suggest that any lingering good manners between City gents are truly a thing of the past.
These days, industry insiders say, takeovers are dirty, unscrupulous affairs where few rules apply and where opposing parties go to almost any length to tarnish each other's reputations. Anything goes, as long as the deal goes your way.
"Different firms have different styles," says one senior source in the corporate surveillance business. "Some will go through people's bins, through mobile phone bills, or they'll bug a meeting room. The big firms say they don't do this stuff, but they do - they just sub-contract it out to one-man operations."
Opposing parties tend to stop short of breaking into each other's offices, although it's not uncommon for hotel rooms to be bugged ahead of meetings.
"People get extremely ruthless and it's not just the investigators," adds the source. "Lawyers, PRs, the banks - all work overtime."
An estimated 200,000 bugs and covert cameras are sold in Britain every year and the Department of Trade and Industry estimates that 44 per cent of businesses suffered at least one breach of security in 2002, costing them £7bn. As the insider says: "You can buy most of this kit on the internet."
But it's not just about Q-style gadgetry: good old-fashioned stakeouts are also used. "No doubt there would be surveillance on people like lawyers - to find out who they're meeting, who might be providing funding. Then there's the human intelligence side, like the secretary who was sacked three months ago, for example, or a disgruntled board member."
Some of the industry's biggest players, like Kroll or Global Risk International, claim theirs is a legitimate business. Andy Marshall, the director of business development and strategy at Kroll, says it provides intelligence on potential business partners to ensure you are "trusting the right people".
Kroll also checks that newly hired personnel are who they say they are, helps beef up security on IT networks and carries out asset-tracking investigations.
There is big money in security, with the global industry growing 13 per cent over the past two years and not expected to slow down any time soon. And that, given the dirty tricks the City evidently likes to pull, is no surprise.
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