Share buying spree sparks insider deals investigation at M&S

Marks & Spencer's new chief executive, Stuart Rose, was facing fresh allegations yesterday over share dealing in the retailer after it emerged that one of his friends had spent £5.5m on shares in the troubled company.

Michael Spencer, the City's richest man with an estimated £400m fortune, acquired 2 million shares the day after he had lunch with his friend Mr Rose, who was parachuted in to run M&S four weeks ago to fend off the £8.4bn advances of Philip Green, the Bhs and Arcadia owner. Since he bought his stake, it has soared some £1.8m in value.

And Mr Spencer, who runs the FTSE 100 broker Icap, is not alone in developing a sudden interest in M&S. The revelation four weeks ago that Mr Green was attempting to buy the retailer sparked an unprecedented flurry of interest in M&S. Its shares, out of fashion for months, became all the rage.

Suddenly, everyone from Mr Green's close associates to Mr Rose ­ who two years ago had been one of Mr Green's guests at his 50th birthday party ­ was piling in to buy stocks trading at knock-down prices.

Such was the surge of interest that the Financial Services Authority, the City of London's main watchdog, declared late on Friday night that it had launch-ed a formal investigation into alleged insider dealing in M&S's shares ahead of Mr Green's proposed bid.

Mr Rose and Mr Spencer have denied the allegations.

The City regulator will use the full force of its powers to crack down on anyone it suspects of profiting from inside information about the biggest bid for a quoted company in British stock market history.

The FSA's decision to hand its inquiry to its enforcement division suggests its initial review of all "suspicious price movements" unearthed enough evidence to merit summoning up powers that in some cases top those of the police.

One of the first people the FSA will interview will be Mr Rose. The fêted retailer, who cut his teeth at M&S before leaving to run Argos, Iceland and Arcadia, bought 100,000 shares in M&S on 7 May, the very day that it was reported he had received a telephone call from Mr Green, who is an old acquaintance.

The alarm bells rang when it emerged that during a three-minute telephone that Friday, Mr Green invited Mr Rose to attend a meeting five days later. It was reported that Mr Green had intended to invite Mr Rose to join his bid at that meeting.

Both men have asserted that no mention of M&S was made during that phone call. Less than 90 minutes after Mr Rose hung up, he spent £276,000 on buying shares in M&S. Thanks to the surge in the company's valuation, he is now sitting on a profit of £86,000. The FSA has the power to interview Mr Rose under caution and force him to hand over any documentary evidence.

Mr Rose's lunch date with Mr Spencer was on 10 May, three days before he met Mr Green and learnt about the Bhs owner's plans. The pair chatted about M&S, by then in the throes of seeking a new chairman to replace Luc Vandevelde, and Mr Rose's long-harboured ambition of returning to run the troubled retailer.

Although the FSA yesterday declined to comment on who was on its hit list, it will not have escaped the watchdog's attention that a number of people connected with Messrs Rose and Green have made timely decisions to buy shares in M&S in recent weeks.

M&S's own investigation into who pulls its purse strings has unearthed a number of business luminaries who move in Mr Green's circle. Tom Hunter, the Scottish entrepreneur behind chains such as Office, Birthdays and the Gadget Shop, bought 375,000 shares on 16 April on behalf of his children's trust. He has denied having any knowledge of his close friend Mr Green's plans when he decided to acquire the shares.

Just one day before, the Reuben brothers, the metals and property billionaires, also acquainted with Mr Green, bought call options on 760,000 M&S shares, which they sold on 11 June for a £437,000 profit. Although the brothers are not involved with Mr Green's project, Simon Reuben did meet Mr Rose on 11 May to discuss takeover opportunities.

Last time Mr Green attempted to bid for M&S four years ago it was his wife, Tina, who was unmasked as a substantial M&S shareholder: this time it is people either on the board of, or close to, his companies. John Readman, his property director, acquired 20,000 M&S shares on 15 January, while his chief clothing supplier, Richard Caring, revealed on Friday that he had amassed a one-million share stake in M&S last year. Mr Caring, however, has not dealt in M&S shares since last October.

Another M&S shareholder is Julian Richer, owner of the Richer Sounds hi-fi chain and a close friend of Allan Leighton, a Bhs director. Mr Richer bought 3,000 shares on 1 June.

Meanwhile the FSA will want to look into a conversation Mr Rose is alleged to have had with the finance director of a FTSE 100 company at last month's Chelsea Flower Show. A banker working for Mr Green claimed to have overheard Mr Rose telling the finance director that he had been asked to chair Mr Green's bid company. Mr Rose and the finance director have both issued denials.

A spokeswoman for M&S said yesterday: "We are confident that there has been no wrongdoing on Stuart Rose's part and will co-operate with any enquiry."

PHILIP GREEN'S ACQUAINTANCES

Stuart Rose

The dapper M&S boss, who scooped more than £20m 18 months ago when Mr Green bought his then charge, Arcadia, exudes charm from every pore. But will charisma alone be enough to rescue him when the FSA pores over the sequence of events that prompted him to buy 100,000 shares in M&S just days before Philip Green invited him to join his £8.4bn bid for the retailer? Mr Rose, 55, who grew up in Yorkshire and was educated at a Quaker boarding school, is seen as something of a shrewd operator among his peers.

Tom Hunter

Scotland's most prominent entrepreneur met Mr Green in the mid-1990s when they merged their sports chains, Sports Division and Olympus. They are now so close that when Mr Hunter was trying to buy Selfridges last year, Mr Green took over the negotiations for him.

The Reuben brothers

Simon, right, and David Reuben own several of London's top West End properties. The Bombay-born pair made the bulk of their estimated £2.2bn fortune from dealing in Russian metal during the 1990s. Simon lives in Monaco, as does Mr Green.

Richard Caring

A close friend and long-time supplier to Mr Green, Mr Caring runs and owns the London-based fashion supplier International Clothing Designs. He is worth an estimated £200m, thanks to his stranglehold over many Asian garment factories.

Julian Richer

The owner of electricals retailer Richer Sounds is an associate of Allan Leighton, who rescued Asda from near-collapse 10 years ago. Should Mr Green's bid proceed, Mr Leighton's food retailing expertise would be used to help turn around Marks' food arm.