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Paul Milsom, a senior equities trader, has been sentenced to two years' imprisonment for improper disclosure of inside information about forthcoming transactions between October 2008 and March 2010, and ordered to pay compensation of £245,657.  This is the first sentence to be imposed in relation to Operation Tabernula, a long-running and complex investigation, conducted jointly by the FSA and the Serious Organised Crime Agency, into an insider dealing ring said to have involved front running of, and spread betting on, trading activity in a significant number of different stocks between 2006 and 2010, on the basis of inside information provided by city professionals.

Mr Milsom, an approved person, pleaded guilty to a charge of having disclosed information which he had received an insider, otherwise than in the proper performance of the functions of his employment, office or profession, to Graeme Shelley, in relation to 28 different trades between 30 October 2008 and 16 March 2010.  A further insider trading charge was taken into account.
 
Whilst working on the central dealing desk, in advance of executing block trades on behalf of his employer, Milsom passed information about the trades to Shelley, a stockbroker, using unregistered pay-as-you-go mobile phones.  Shelley would front run Milsom's trades using contracts for differences or spread bets.  Milsom received £164,000, representing 40% of the profits from Shelley's trading. 
 
Milsom also passed information to another unnamed stockbroker,  from which he derived £81,000 in respect of 15 transactions on 5 different stocks.
 
Shelley was one of six men arrested on 23 March 2010, when the FSA and SOCA executed searches at 16 addresses in London, the South East and Oxfordshire, seizing documents and computers from both residential and business premises.  A further arrest was made the following day.  The operation was carried out by 143 FSA personnel together with officers from SOCA as part of a joint investigation that commenced in late 2007.  One of the documents seized at Shelley's premises was a handwritten note of the trades he was making, with the letters "MP"  - the note was later linked to Milsom.  Further searches were carried out in April 2011 and in February 2012, and two further arrests were made, including Milsom.
 
The press reports that Milsom indicated his intention to cooperate and assist the regulator within days or weeks of his arrest.  Yesterday, he was given full credit for his cooperation - “the fullest possible and the frankest possible disclosure”, and for entering into a plea agreement with the FSA - and for his early guilty plea, and genuine remorse.  Nevertheless, the Judge considered his actions to be a "betrayal", a "very significant breach of trust", and "deliberate, planned and dishonest".  The Judge also noted that he had taken some measures to conceal his criminal conduct.  No criticism is made of Milsom's firm. 
 
Whilst acknowledging the assistance Milsom had provided, the FSA's statement went on to note that:

"Those who work within the industry should be the custodians of its reputation.  Milsom’s approach could not have been further from that. His personal greed will have cost him his reputation, his career and his liberty.  Those who think there is easy money to be made from insider dealing should think again."

Next steps

In relation to Operation Tabernula, in October 2012, four men (Martyn Dodgson, Andrew Hind, Benjamin Anderson and Iraj Parvizi) were charged with conspiracy to insider deal between November 2006 and  March 2010.  Richard Baldwin was charged with three counts of insider dealing on 21 December 2012, and Mr Shelley has also been charged with 28 counts of insider dealing.  To date, none of them has entered a guilty plea and no trial date has been set.  Two of the men arrested in 2010 have not been charged.

Use of personal mobiles

By way of reminder, the FSA's recording rule applies only to mobile phones and other handheld electronic communication devices issued by firms for business purposes, or to phones or devices whose use the firm has sanctioned.  COBS 11.8.5A requires firms to take reasonable to prevent an employee or contractor from making, sending or receiving relevant telephone conversations and electronic communications on privately-owned equipment which the firm is unable to record or copy.

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cobs fsa enforcement insider dealing market abuse

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