Britain fails to come to grips with suspicious share deals: Only 23 people have been convicted for insider dealing out of 52 prosecutions since 1980, finds Heather Connon

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The Independent Online
ANY IRRITATION on Lord Archer's part at the Department of Trade and Industry's delay in releasing its verdict on whether he insider dealt in the shares of Anglia Television would be understandable.

The transactions that aroused the Stock Exchange's suspicion occurred in January; the DTI appointed inspectors on 8 February. It took them more than five months to produce their report, which was delivered to the DTI this week. There is still no indication of when the DTI will announce the outcome.

That may seem an inordinately long time to study three transactions, establish whether Lord Archer or his associates dealt in Anglia shares, and if so whether it was because they knew something they shouldn't. Yet this inquiry was dealt with more swiftly than most such investigations - if they are started at all.

The City's attitude to insider dealing has moved on dramatically since Sir Martin Jacomb, then chairman of the stockbroker Barclays de Zoete Wedd, described it as a victimless crime in 1986. Now institutional shareholders describe it as theft - and they know that they, and the pensioners and private shareholders they represent, are the victims. Those who buy or sell ahead of price-sensitive announcements are robbing law-abiding shareholders of profits, or inflicting losses on them.

Nevertheless, many in the City believe it is still rife. There is growing frustration at the apparent inability of the Stock Exchange to track down the offenders, at the delays in the investigation process, and at the difficulty in securing convictions when cases are actually brought to court.

In the past five years, the Stock Exchange has referred 52 suspicious cases to the DTI. It is responsible for deciding whether the allegations warrant further investigation - usually done by independent inspectors. In the same period 25 of these were appointed.

These numbers are tiny compared to the number of suspicious price movements seen in the market each week.

On Wednesday, for instance, after its share price had halved to 6p in a matter of days, the property adviser de Morgan was forced to confirm bid talks had been aborted. And last week Castle Communications disclosed it was in bid talks after its shares had soared.

These cases may already be on either the Stock Exchange or the DTI's list but the City doubts it. And, in any case, only 52 people have been tried, and just 23 convicted, in the 34 cases brought since the legislation was introduced in 1980.

Tighter legislation, introduced by the Criminal Justice Act on 1 March, may help - or it may just lead to more confusion, since it brings far more people into the insider net.

The best place to start improving matters is probably the Stock Exchange, where a 20-strong surveillance team is responsible for monitoring suspicious trades.

'Their credibility has been destroyed,' one institutional investor said, pointing to Tiphook, where Paul Myners, chairman of the fund manager Gartmore, took the rare step of publicly calling for reform of the exchange's procedures because of their lack of success. 'They have no enthusiasm for investigation - they just go through the motions.'

A growing number of people believe that responsibility for monitoring all forms of market misconduct should no longer rest with the Stock Exchange.

Indeed, the regulator, the Securities and Investments Board, in a recent paper suggested that it should take on the responsibility for market surveillance. It argues markets are becoming increasingly complex, and more international. Effective surveillance will, therefore, increasingly depend on co-operation with other market regulators, like the London International Financial Futures Exchange and the London Traded Options Market, as well as with their counterparts overseas.

The exchange insists that it has never had any problem in getting co-operation from other regulators, although some suggest surveillance staff frequently have trouble even in persuading colleagues in other departments to talk to them.

Passing the responsibility up to the SIB would put a bit more distance between practitioners and regulators, which may give it more credibility.

But it would also need the exchange's co-operation and adequate resources: the 20 surveillance staff pale into insignificance compared with the huge resources available to the Securities and Exchange Commission in the US.

That has led some to suggest that Britain should have a Government-backed SEC-style market regulator. They compare the SEC's successful dollars 100m fine and 22-month prison sentence for Ivan Boesky with the pounds 25,000 fine and 12 months suspended for Geoffrey Collier, the Morgan Grenfell merchant banker who is still Britain's most famous offender.

British governments, however, tend to be less than effective regulators. So others suggest that insider dealing should become only a regulatory offence, which could be dealt with by the SIB or the exchange. Punishment would be a fine and disqualification from trading.

That would speed things up - there would be no need for time-consuming DTI reports or decisions by ministers. It would also remove the stringent evidence requirements needed to secure criminal conviction.

Leaving it to regulators is halfway to accepting that it is a victimless crime, though. A better solution may be to make it a civil offence, where less weighty evidence is required. In the US, it can be either - and the SEC will focus its energy only on criminal prosecution for cases involving large sums, or where there is evidence of a series of offences.

But letting regulators punish dealers would be unpopular unless there were radical changes to the surveillance system. As information is the key, that would be a good place to start. The rules permitting disclosure of large trades to be delayed by 90 minutes, or even up to five days, keep information from the market and should be abolished.

Most people in the City will be able to tell you which stockbrokers are regularly associated with suspicious deals. Immediate publication of all trades, and who carried them out, would disseminate that information more widely.

And that goes for companies too. The less time information is kept confidential, the fewer insiders are created.

----------------------------------------------------------------- INSIDER INVESTIGATIONS BY DTI ----------------------------------------------------------------- Year to Cases at Referrals Appt of Inspectors' Cases at March start of by Stock inspectors report end of year Exchange submitted year 1990 14 21 12 10 16 1991 16 8 4 11 9 1992 9 11 3 8 4 1993 4 5 1 3 2 1994* 2 17 5 1 6 *to date -----------------------------------------------------------------

(Graphs omitted)

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