An equities trader at Legal & General has been arrested in the latest of the Financial Services Authority’s and the Serious Organized Crime Agency’s investigations into insider dealing in the City of London.

Mr Paul Milsom, 44, was arrested on 16 February 2013 as part of the Financial Services Authority’s investigations into insider dealing in the “Square Mile”. Mr Milsom, an equities trader in Legal & General Group Plc’s investment-management arm, was unavailable for comment and Legal & General commented only to confirm that a 44-year-old employee had been arrested and released on bail. It was not confirmed as to whether Mr Milsom had retained a criminal defence lawyer to advise him.

The FSA’s investigations – codenamed “Tabernula” – is the largest insider dealing investigation ever undertaken by the organisation. The investigation is probing whether persons used knowledge of upcoming securities sales to generate a profit for themselves – a practice known as “front-running”. These money managers were able to profit from the information imparted to them by banks in advance of the sale of the securities as banks generally release such information to allow underwriters measure demand for the securities (and thus better price them).  A number of traders (including employees at Moore Capital, Deutsche Bank, Novum Securities and Aria Capital) have been arrested but nobody has yet been charged with a crime.

Insider dealing is a criminal offence under s.52 of the Criminal Justice Act 1993. Under s.52 a criminal offence is committed if:

  • An individual who has information as an insider deals in securities that are price-affected securities in relation to the information; or
  • An individual who has information as an insider encourages another person to deal in securities that are (Whether or not that other knows it) price-affected securities in relation to the information, knowing or have reasonable cause to believe that the dealing would take place; or
  • An individual who has information as an insider discloses the information, otherwise than in the proper performance of the functions of his employment, office or profession, to another person

A person is not guilty of insider dealing if they show that (among other things):

  • They did not at the time expect the dealing to result in a profit attributable to the fact that the information in question was price-sensitive information in relation to securities; or
  • At the time of the dealing in the securities he believed on reasonable grounds that the information had been disclosed widely enough to ensure that none of those taking part in the dealing would be prejudiced by not having the information; or
  • That he would have done what he did even if he had not had the information

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