Imagine the situation. You’re a partner in one of the most prestigious investment banks in the world, you’re well known in the investment world and are no doubt on a great remuneration package. You suddenly obtain access to some price sensitive information which the public is not aware of.
What do you do?
Well, if you are Malcolm Calvert and you were a partner in the investment bank Cazenove, then the answer was to undertake some insider dealing activities which resulted in a significant illegal profit.
Calvert obtained some confidential information concerning some upcoming takeovers and told his friend Bertie Hatcher to buy some shares in the companies. As soon as the takeovers were announced to the public the share price shot up and Hatcher sold them and made a profit of over £100,000. In the spirit of the “shadiness” of this whole saga Calvert’s share of the money was given to him in cash in an envelope that had been left with a bookmaker at a racecourse.
The conclusion of all of this was a successful prosecution by the Financial Services Authority (FSA) which yesterday ended with Calvert being jailed for 21 months (there was a maximum sentence of seven years for his offences).
As every good ACCA F4 student will know insider dealing is the illegal activity of using non-public (ie privileged) information to make a personal gain or avoid a personal loss and as Calvert now knows very clearly can result in jail sentences.
Interestingly though, until the 1950s similar “insider trading” activities were considered legitimate. However, we are not in the 1950s but in 2010 and as a result the act of using price sensitive information to trade in shares and profit out of it is illegal.
Calvert would have known this had he studied for paper F4. I guess though that for the next 21 months he’ll have plenty of time on his hands. Whether or not he’ll use that time to study insider dealing laws though is another matter altogether!