Exchange set to decide on Caradon

DAVID HELLIER

The Stock Exchange is believed to be considering what action to take at the conclusion of an investigation into share dealing in Caradon, the building products group, ahead of its results in September.

Although the Exchange stood down an earlier investigation last year, in the past few weeks it has received fresh allegations which have led it to reopen its inquiry.

The latest claims, first reported last week in the Independent, involve a possible relationship between Robert Fleming, the City investment bank, Financial Dynamics, Caradon's public relations firm and one of the City's largest, and the alleged leaking of Caradon's results in advance of their publication.

The Exchange is trying to ascertain whether anyone at Robert Fleming made improper use of privileged information. Heavy trading in the shares on the Friday before the results were due first attracted the attention of regulators. Caradon was the market's most heavily traded stock, with 26 million shares changing hands at about 210p each in the late afternoon.

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

The likelihood that there had been a leak was strengthened when reports that Caradon would unveil disappointing figures appeared in two Sunday newspapers. Caradon brought forward its results and issued a profits warning on the Monday, leading a number of brokers to downgrade their forecasts. Last week, Robert Fleming conducted its own inquiries but declined to comment. In the early part of the week, three employees were absent from the office. By Friday, one had returned to work, while a second is expected back today.

The employee who returned on Friday explained that he had been writing a research paper at home. He declined to comment on whether he had been subject to questioning during the internal inquiry.

Stock Exchange surveillance sources said last week they were looking into allegations of improper use of privileged information. But it is not clear whether the fresh allegations are backed up by tape recordings or other objective evidence.

An announcement from the Exchange on its intended action could come as early as this week. Among the options, the Exchange could pass the allegations on to officials at the DTI for their consideration. It is possible that the Exchange will decide to take no further action if it is convinced that there is insufficient evidence.

The chairman of Financial Dynamics, Tony Knox ,was last month rebuked by the Takeover Panel for releasing price-sensitive information to a building analyst about an increased profits forecast for Amec, the UK construction group that was attempting to ward off a hostile bid from Kvaerner, the Norwegian concern.

Amec managed to see off the bid and subsequently replaced Financial Dynamics with another PR firm, Dewe Rogerson, after the public rebuke from the Takeover Panel.

At the time of the Amec affair, Bill Staple, the director-general of the Takeover Panel, was reported as saying that he hoped the ruling would serve as a warning to the entire market that the regulator was determined to clean up the City.

It is thought that Financial Dynamics believes there is a smear campaign under way, and questions the origins of the allegations. It is an especially sensitive time for the firm, as it is in the process of devising a new share incentive scheme to reward key employees and to prevent departures to rival firms. Financial Dynamics had no comment yesterday.