DTI called in after 'insider deals' probe

DAVID HELLIER

The London Stock Exchange last night announced that it had passed the findings of an investigation into dealings in the shares of Caradon, the building products group, to the Department of Trade and Industry.

A four-line statement from the Exchange, whose chairman is John Kemp- Welch, said that it had concluded an investigation into dealings in the shares of Caradon ahead of an announcement by the company on 11 September last year relating to its interim results. News of the Stock Exchange investigation was first revealed earlier this month in the Independent.

The last time the Exchange made a public announcement that it was investigating allegations of improper share-dealing was in August 1994 when it confirmed that it had passed on information to the DTI about share dealings in Anglia television ahead of a takeover bid.

The decision was taken after new information on the dealings came to light in the past couple of weeks. It comes as two analysts at Robert Fleming, the investment bank, who have been at the centre of questioning, have quit their posts. Derek Reed and Martin Murch were said to be no longer employees of the company yesterday, although they are believed to have been offered consultancy work by the bank. The DTI will decide whether to appoint inspectors to investigate the case.

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

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 some brokers to downgrade their forecasts.

The Exchange has been considering suggestions of a relationship between Robert Fleming and Financial Dynamics, Caradon's public relations firm and one of the largest in the City.

Financial Dynamics' chairman, Tony Knox, is known to be friends with the two former Robert Fleming analysts. Mr Knox has declined to make any comment on the affair although friends of Mr Knox have said that there is no question of him having passed them any inside information.

Yesterday Nick Miles, the chief executive of Financial Dynamics, said he welcomed the official announcement of the inquiry.

"This will give us the chance to clear our name and get on with our business.

Mr Miles said his firm had twice contacted the Exchange to ask if it could be of any assistance to its investigation. "They told us that they had no need to see us," he said.

Mr Miles added that there was no question of anybody at his firm passing on inside information about Caradon.