Is this insider dealing and/or do I report to SOCA?

Is this insider dealing and/or do I report to...

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Client is unconnected with the PLC in question but has received a valuable tip off and invested heavily in its shares some weeks before a takeover announcement.
This looks like insider dealing but it is remote from the action. He appears to have only used his own money, ie not "borrowed" from friends. Somebody has clearly tipped him off because he is not in the habit of investing in shares.
Is there a crime commited by our client? If so what do we do?

Joe Karam

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By AnonymousUser
17th May 2007 16:40

Thank you for the responses

It is as we feared, the client is unaware that he has done anything wrong, but is a criminal.

Don't worry, gentlemen, we'll be filing a report with SOCA. It just seems a shame that the real guilty party may not get caught whereas our client will get a lot of grief.

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By frauke
17th May 2007 16:54

insider dealing or ramping?
There is a term called Ramping - it is widespread within the investment cummunity - you seen all the time on the financial "tipping" bulletin boards.

This is when someone "tips" a share becuase they believe it will be taken over, or is about to announce some very good or bad news.... (Pretty common place) Sometimes it happens sometime it does not. It is called "ramping" because the aim is to "ramp up" a share price, so the "tipster" can sell at a profit and get out before anyone else realises. ( I've seen shares Ramped down by the Shorters too)

Sometime co-incidences happen - and the company gets taken over or there is good or bad news. Many think its insider trading - but its not. When real insider trading occurs the company shares are often suspended to stop it - there are quite a few "checks" in place when unusual buying (and selling goes on).

If you client had lost money - would you have still considered it insider trading and criminal?

I'm not saying don't report it - you should, but you need to be aware it may be "market practice" rather than insider trading (Isn't that what happened with the Guiness affair - accused of fraud, then "got off" due to it being common market practice?) and therefore your client may not actually be "comitting a crime"

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By AnonymousUser
17th May 2007 18:30

Why...

...does this "look like insider dealing"?

Unless you actually have reason to believe the tipster was an insider what reason can you have for suspecting there there has been a crime that requires a report to SOCA?

A number of tipsters tipped this week's takeover of Reuters by Thomson but it is unlikely that they were all tipping on the basis of insider information.

Maybe none of them were!

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David Winch
By David Winch
18th May 2007 07:45

A combination of factors

Joe

I expect your suspicion is based on a combination of factors. These might include (not in any particular order):-

- the frequency, or infrequency, with which this client invests in shares of various companies
- the timing of the investment in relation to the takeover
- the amount invested seen in the context of the client's financial position
- the nature of the investment (a purchase of an option to buy, for example, might be more suspicious than a simple purchase of shares)
- any apparent connection with a possible source of 'inside' information
- the percentage gain
- any other unusual financial transactions at around the time of the investment or realisation (such as borrowing money or making significant payments to third parties).

Not all of these factors were apparently present in Joe's case, but clearly there were sufficient grounds to cause Joe to suspect, or to give Joe reasonable cause to suspect, insider trading. Hence the need to report to SOCA.

David
www.MLROsupport.co.uk

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David Winch
By David Winch
17th May 2007 17:51

Don't assume

Joe

Don't assume that because you make a report some action by the authorities will follow. Very often no action follows a report.

Reports involving suspected tax evasion are passed to HMR&C who are 'geared up' to dealing with suspected evasion.

Reports of fraud or theft go to the police who are typically already over-stretched and have other priorities (such as street violence) and therefore often take no action.

Whether this report would go to the FSA and whether, if they get it, they are likely to take any action on it I cannot say. I suspect if it involves less than a 6 figure sum and appears to be an isolated case no action will be taken but I may be wrong about that. However I would be very surprised if your client were prosecuted. The authorities might go so far as to ask him who tipped him off and then take some regulatory action against that source person. (However the situation will be different if your client actually paid for the information or is himself working within the 'regulated sector'.)

Don't beat yourself up about it!

David
www.MLROsupport.co.uk

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David Winch
By David Winch
17th May 2007 13:49

Report it

Joe

I think you have reasonable grounds to suspect a crime from which someone has benefited.

It follows that a report to SOCA is obligatory.

David
www.MLROsupport.co.uk

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By AnonymousUser
17th May 2007 14:00

Who is the criminal?

David

Thank you for the very prompt response. We believe that our client is unaware of the legal implications. (Let's be kind to him and say that he is not middle class.) He received a hot tip from a trusted source and acted on it in hope of making a quick buck.

The real criminal is surely the person who released the information when it should have been kept sub rosa? Our client's only crime would appear to be not telling the police about the informer (ignorance being no excuse in law).

Or are we missing something?

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By nathanhamill
17th May 2007 14:29

Who's the criminal?
Joe, YOU may well end up being the real criminal if you don't report this.

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David Winch
By David Winch
17th May 2007 14:58

The real criminal

Joe

It doesn't matter (to you) who the real criminal is / criminals are (it could involve any number of people). You have reasonable grounds to suspect a crime has been committed (by someone) from which someone (may be the same person, may not be) has benefited. You are obliged to report what you know (including the identity of your client - whether he is a criminal or not).

The obligation to report is not restricted to criminal conduct by your clients - it relates to information received by you in the course of work in the 'regulated sector' (accounts / tax / audit / insolvency / etc.) about suspicion of criminal conduct which has generated a benefit.

Someone else can investigate what crime has been committed by whom and who has benefited. That is not your responsibility.

David
www.MLROsupport.co.uk

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