U.K. speeds insider crackdown. Cousin of Boesky case a test for self-regulation
London — Tough new government regulations to curb insider trading in Great Britain will be applied ahead of schedule as a result of the first major scandal to hit the City, London's financial district, since last month's ``Big Bang.'' The measures, which take effect immediately, follow an investigation by the Stock Exchange and the Department of Trade and Industry (DTI) into alleged insider trading by Geoffrey Collier, a former senior director of the securities arm of Morgan Grenfell, a major merchant bank.
He resigned Nov. 10 after admitting he bought and dealt in shares on the basis of confidential information. Mr. Collier has agreed to cooperate in a continuing investigation.
The disclosures in Britain came just a few days before a major insider trading case in the United States widened. Ivan F. Boesky, one of Wall Street's top arbitrageurs, agreed to pay $50 million in fines and give up $50 million in profits. He was barred for life from the US securities business.
Mr. Boesky was charged by the US Securities and Exchange Commission with using illegally obtained information to profit from proposed or pending corporate mergers.
The new British regulations, under the Financial Services Act, will enable the DTI to appoint inspectors to take sworn testimony from anyone considered to have relevent information.
It will also compel witnesses to answer questions or be held in contempt of court if they fail to comply. The inspectors will also have the power to subpoena documents.
These powers were to be part of the Financial Services Act, scheduled to be introduced early next year.
The regulations dealing with insider trading were put into effect now, however, amid fears that insider dealing would become more widespread in London's recently deregulated financial community, possibly tarnishing the City's reputation.
``Had an attempt been made to mitigate or reduce the circumstances of the situation, the City's reputation would have been called into question,'' said Geoffrey Redman-Brown, a director with Phillips & Drew, a British brokerage.
``This certainly is a warning as to what might happen [to others].''
Insider trading has been a criminal offense in Britain since 1980, but the laws against it were considered inadequate by the government and many in the financial community.
There have a large number of suspicious cases where share prices moved substantially ahead of major announcements. Yet, after obtaining the results of many detailed investigations from the London Stock Exchange, the DTI has prosecuted only a handful of insider-trading cases since 1980.
In the present case, Collier allegedly bought 50,000 shares in A.E. PLC, a British engineering group, before a takeover bid launched by Hollis PLC, a corporate client of Morgan Grenfell.
The Collier incident is now generally seen as a test case for self-regulation in the City. Before Big Bang, when the City operated much more like a gentleman's club, an episode such as this probably would have been quietly buried and any wrongdoers discreetly let go.
But Morgan Grenfell's decision to go public is being seen as an indication that the moral climate in the City has changed. In the wake of the recent massive deregulation, even the slightest hint of a cover-up could have damaged Morgan Grenfell's standing.
The share purchase was made through a Cayman Islands company controlled by Collier. But the deal was actually executed through the Los Angeles office of Vickers da Costa, a British stockbroking firm that acted for Collier.
Michael Cassell, the Los Angeles head of Vickers, is thought to have been suspended after Collier's resignation.
In response to the SEC actions against Mr. Boesky, the governing body of the London Stock Exchange is meeting today to consider what action its members might take against him.
At the same time, Boesky has resigned as chairman of Cambrian & General Securities, the British investment trust through which he conducted many of his arbitrage activities.