Pictured above: (l-r) Challinors' Fraud & Asset Recovery lawyers Arun Chauhan and Mark Kenkre

The Financial Services Authority (FSA) has ramped up the number of investigations into insider trading in the last three months, stepping up its efforts to crack down on market manipulation.

According to fraud lawyers at Midlands firm Challinors, the forthcoming election will determine any future government policy, but in the short-term, there is little doubt that fraud and financial crime will continue to be high on the political agenda.    

Challinors' joint head of the Fraud & Asset Recovery department Arun Chauhan comments: "Under the leadership of Margaret Cole, the FSA is stepping-up its efforts to crack-down on market manipulation, demonstrated by the marked increase already this year in the number of investigations into insider trading. The FSA has been cracking-down on insider trading for the past two years but the approach it is now taking is markedly different.

"Insider trading involves trading stock or other securities by individuals who have potential access to non-public information about the company, and this is a criminal offence in the United Kingdom under the Criminal Justice Act 1993.

"The FSA has recently produced data that suggests around 30 percent of all trading that takes place in the two days before a takeover is announced could be influenced by inside information. Insider trading is said to be rife but prosecutions can take up to two years from arrest to charge as building a case is extremely complicated and requires the regulator to sift through a lot of complex information," he says.

"In the last month alone, there have been dawn raids and arrests in the City of London. Previous efforts have looked at fringe players such as interns at investment banks, retired stockbrokers and employees at second-tier firms, but in these latest investigations, leading players have been arrested, which has struck at the heart of the city." 

According to Challinors' Mark Kenkre, who heads up the firm's specialist Fraud team alongside Arun, two recent examples show just how seriously insider trading is now being taken, and how keen the desire of the FSA is to seek its first extradition for insider trading: "A suspect in the French territory in the Comoros Islands was detained and a European Arrest warrant was issued by the FSA. The FSA has also launched 'Project Saturn', an insider dealing investigation which has seen a former employee of a top City spread-betting firm charged." 

So what of the future and in the run-up to the general election? Arun says: "The FSA must look at the delicate balance of when normal market behaviour becomes criminality which is why a case is so difficult to prove. Whilst the FSA is now targeting leading City individuals, it should also serve as a warning to any professional with sensitive market information who should not use such information for their own benefit."

Mark adds: "The Authority has brought proceedings against solicitors in the past for insider trading in relation to corporate deals, which should serve as a warning to those in the legal profession. There has always been a duty of confidentiality, but if solicitors are tempted to use information themselves or pass it to third parties, they risk not just being struck from the register but could also face a custodial sentence.

"The economic downturn has seen a marked increase in fraud and financial crime. Even in the lifespan of the downturn there have been trends emerging and it would appear the FSA is now keen to put a marker down to demonstrate that market manipulation will not be tolerated and that the financial sector will have to become accustomed to regulatory bodies well and truly turning the spotlight on them."

Challinors has offices in Birmingham, West Bromwich, Wolverhampton, Halesowen and Nottingham. The firm has 24 partners and over 100 fee earners, and is ranked as one of the top legal firms in the West Midlands, being Number 1 in the Chambers UK Directory in a number of categories, including Clinical Negligence.