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On the money

Years ago in Beirut airport, they never plugged in the security scanner that everyone had to walk through.

The reason was that, with the tensions in the area at the time, it would be
very embarrassing to actually catch anyone. The villains were more powerful than
the police.

One wonders if the same attitude is beginning to be seen in the stock market.
A few weeks ago, the volume of shares traded in House of Fraser one Friday was
five times the level of the previous day. Then, after the market closed, House
of Fraser announced there was a proposal for it to be taken private.

In fact, a study by the Financial Services Authority found it was quite
common for target company shares to rise by as much as 30% in the weeks before a
bid is formally announced. Not every takeover bid is known by the market in
advance, but it does seem to be the case. Yet prosecutions for insider dealing
are few and far between and seem only to catch fairly low level people.

The only exception to this rule was a recent case that involved someone
within the CSFB passing information to friends outside, who then bought or sold
the shares through the spread betting market. The ingenious defence – which
failed – was that spread betting was not covered by the insider dealing laws.

Though it was never disclosed in court, because only a few offences were
selected for the trial, the profits made by the syndicate in all the cases
investigated were well over £1m.

Deals are more complex than before and involve more people, so there is
increased likelihood of leak. Most of those involved, however, work for big City
names. Perhaps the regulators think it not really worth the effort because those
responsible are just too big, too powerful and so much better resourced. It is
much easier not to catch them.

Anthony Hilton is finance editor of the Evening Standard

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