City bank in insider deals probe

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The Independent Online

The City was last night preparing itself for a big insider- dealing inquiry, focusing on a link between a public relations firm and employees at Robert Fleming, the investment bank.

Department of Trade and Industry inspectors are next week widely expected to be called on to investigate.

The London Stock Exchange, whose surveillance department investigates allegations about the improper use of privileged information, has been listening to tape-recorded conversations between Financial Dynamics, one of the City's largest public relations companies, and employees of Robert Fleming. Financial Dynamics' clients include Tesco and Kingfisher.

The exchange is trying to ascertain whether anyone at Robert Fleming or any of its member firms made improper use of privileged financial information about the building company Caradon in September last year.

If they believe there is a prima facie case of wrongdoing, the usual procedure would be to pass the information to the Department of Trade and Industry.

Yesterday a source close to the investigation said a decision had been delayed: "as more and more information comes up. But we are pretty well there now and there could be an announcement early next week."

Three employees at Robert Fleming spent time away from the office after the New Year break while the bank conducted its own internal inquiries. The Stock Exchange first investigated share dealings in Caradon last September after the building products firm was forced to bring forward its results and make a profits warning.

On the Friday before the results were due there was unusually high turnover in the shares, which fell sharply.

At the time, stock market dealers expressed concern over the trades, saying that the volume of trade implied that some people were aware of Caradon's poor performance in advance of the publication of the company's figures.

The initial investigation appears to have lapsed. But in the past few weeks fresh information has been passed to the Stock Exchange which forms the basis of its latest inquiries.

Financial Dynamics believes it is the victim of a smear campaign and rejected suggestions that anyone was contemplating resignation. Financial Dynamics was recently rebuked by the City Takeover Panel in an unrelated incident which involved passing on information about a client's future profits performance during the course of a contested takeover battle.

Some directors of Financial Dynamics are expected to receive hundreds of thousands of pounds in earn-outs soon, while others are hoping to receive incentives with new share options.