On Thursday, the Stock Exchange took the unusual step of announcing that it had passed details of its investigation to the Department of Trade and Industry for possible further action.
The inquiry has centred on alleged links between Financial Dynamics, a top City public relations firm and Caradon's adviser, FD's chairman Tony Knox, and merchant bank Robert Fleming. It has reviewed whether anyone at Fleming received or made improper use of inside information on Caradon.
Two Fleming analysts have now quit the firm and the inquiry has re-awakened concerns about insider dealing in the City. Other leading brokers contacted by the Independent on Sunday, however, said they had not reviewed their own telephone tape recordings as a result of the affair.
Imro -the Investment Management Regulatory Organisation, which supervises fund managers - refused to confirm or deny it had launched an investigation, but a spokeswoman said: "If a firm registered with us is involved with another agency, we would be involved, and we would have to consider what [disciplinary] action to take."
Imro's intervention would broaden the inquiry, as it haspowers to fine member firms, discipline individual members, and possibly ban them from the City.
The DTI, meanwhile, has sweeping powers to appoint investigators, but its record of insider-trading convictions is patchy. The last time the Stock Exchange made such an announcement was in August 1994, when it investigated allegedly suspicious share dealings involving Lord Archer and Anglia TV prior to a takeover bid. No prosecutions followed.
Imro would focus on its member firm, Fleming Asset Management, which sold a stake in Caradon some time before a profits warning from the firm last September, as well as other institutions that sold before the warning.
Caradon's warning came with its interim figures on a Monday, but the previous Friday saw heavy trading in some 26 million of its shares, with one tranche of 10 million sold well below the closing price in late afternoon.
On the Sunday, two newspapers, including the Sunday Times, accurately predicted that Caradon would produce poorer than expected results, in what was seen as another leak.
The affair highlights the incestuous world of City PR, the business of promoting a company to the press and analysts.
Last year, FD hired Jeff Randall, formerly City editor of the Sunday Times, as deputy chairman on a reported salary of pounds 200,000. Mr Randall had left the paper before the Caradon story.
Ironically, FD is also Imro's PR adviser, but Imro said it did not see a conflict in retaining the firm on an ad hoc basis.
An FD executive said on Friday: "No one at Financial Dynamics issued any price-sensitive or insider information to anyone in the market."Reuse content