Seven traders arrested by the City watchdog in the biggest insider dealing investigation yet seen in Britain will have their defence costs paid for by legal aid, The Independent has learned.
The seven men, including some of Britain's most wealthy and successful traders, were detained in dawn raids by the Financial Services Authority and the Serious Organised Crime Agency (Soca) on 23 March and have since been bailed by magistrates.
However, it is understood that all have had their assets frozen, with their living allowances set at only a few hundred pounds a week each. Sources close to the inquiry said that because of this they would qualify for legal aid – at a seven-figure cost to the taxpayer.
The accused worked for some of the City's highest profile and most powerful institutions, including the hedge fund Moore Capital, Deutsche Bank, Exane BNP Paribas and Novum Securities. Accustomed to seven-figure salaries and bonuses, they are having to get used to far more modest lifestyles than they once enjoyed.
Andy Millmore, the head of litigation at law firm Harbottle & Lewis, said their defence costs would rapidly swell to more than £1m and beyond if and when the case came to court. Mr Millmore, who has been involved in a number of major City cases during his career, said: "I would I expect that the defendants will need separate representation. I think that in a case of this magnitude that if they are charged the legal costs would be well in the hundreds of thousands of pounds in each case. Put that together and the final figure will be well over a million."
The revelation that seven of London's most wealthy financiers qualify for legal aid is likely to cause even more public fury than the news last week that three former Labour MPs facing fraud charges over their expenses claims will also receive legal aid funded by taxpayers. Politicians across the party divide have pledged to change the law on legal aid.
Sources last night indicated that it could be well over a year before a case against the seven finally reaches court, if charges are ultimately brought against them. The investigation, which involved 143 FSA staff together with Soca operatives, is the first in which the two bodies have collaborate.
It is part of a far-reaching crackdown on insider trading and is widely expected to be followed by further arrests in the Square Mile and Canary Wharf as a series of cases come to their conclusions. The FSA reckons up to a third of the deals in the City are accompanied by insider dealing.
The regulator's aggressive campaign against incidents of insider dealing, led by its head of enforcement Margaret Cole, follows criticism that it was not doing enough to stamp out the practice, and has spread fear through dealing rooms.
The FSA has so far secured five jail terms, one of them suspended, relating to insider trading. The most recent was handed to Malcolm Calvert, a former partner at the Queen's stockbroker, Cazenove, who was convicted at Southwark Crown Court last month and jailed for 21 months.
On Wednesday, another seven men charged by the regulator as part of its "Project Saturn" inquiry into claims of insider dealing by staff in the print rooms of two investment banks, JPMorgan Cazenove and UBS, appeared at a preliminary hearing.
The watchdog is under threat of closure should the Conservatives win the election. David Cameron's party has pledged to transfer many of its powers to the Bank of England and set up Consumer Protection Authority. The FSA declined to comment.