UBS and JPMorgan print rooms.
One of six individuals sentenced on Friday to a total of 16 years in prison for taking part in an insider trading ring has said the JP Morgan Cazenove print room manager allegedly at the heart of the conspiracy avoided prosecutors by fleeing to Northern Cyprus.
Ersin Mustafa, a contractor for Xerox running the secure print room in JP Morgan, was accused of playing a pivotal role in sourcing confidential documents from the bank and from UBS where his brother Ali Mustafa worked – his role also involving the confidential printing of market-sensitive documents, many of them linked to corporate takeover plans.
While Ali Mustafa and five others were sentenced to jail terms on Friday, Ersin is still at large. He had been on police bail following a series of co-ordinated raids in the summer of 2008 but failed to attend a police interview some months later. His whereabouts is not know and he has not been charged.
Counsel for the Financial Services Authority nevertheless told jurors at Southwark crown court, who heard the case over four and a half months, that Ersin Mustafa was a senior figure in the ring. He was said to have taken thousands of confidential documents – uploaded from bank computers on to USB memory sticks by himself and his brother – and later downloaded them into a password-protected web email account.
From the witness stand, Ali Mustafa told the court he believed his brother was now in Northern Cyprus. Together with his co-defendants – Pardip Saini, Paresh Shah, Neten Shah, Bijal Shah, Truptesh Patel and Mitesh Shah – Ali Mustafa had pleaded not guilty. All were convicted save Mitesh Shah, a broker at City Index, who had placed the spread bet trades on behalf of the trading ring but was acquitted of knowing involvement in the conspiracy. Those convicted received sentences of between 18 months and three and a half years.
The number of individuals who accessed the email account into which Ersin Mustafa was said to have deposited insider documents is not known, but five individuals were accused by the FSA of trading on the insider information. They were convicted in relation to deals from which they collectively profited by about £730,000.
This criminal gain is less than 15% of the cost of the FSA investigation and prosecution, though investigators are pressing hard for greater sums to be confiscated by the courts, arguing that the evidence heard at trial was only a sample of the dealing ring's criminal activity between 2006 and 2008. The jury heard evidence of insider trading involving stocks such as Biffa, Reuters, Premier Oil and Thus.
The FSA had been tracking the suspected trading ring since 2006, but it was not until the following year that it discovered a text message had been received by one of the traders from Ersin Mustafa – the first link to an individual likely to have relevant insider information.
Insider dealing prosecutions are notoriously difficult to secure and FSA investigators had to sift through dealings in more than 500 stocks linked to 130 trading accounts, often held in the names of third parties, to build a case described by the regulator as its "most complex insider prosecution to date". In addition, they looked at thousands of documents deposited in email accounts and held on memory sticks as well as text messages on multiple pay-as-you-go phones.
The FSA emphasised there was no question that JP Morgan Cazenove or UBS had acted improperly, though lessons had since been learned across the industry. The regulator believes the use of USB sticks is now prohibited in most investment banks, as are web email accounts.
Handing down sentences, Mr Justice Pegden QC praised "the meticulous and exhaustive FSA inquiry (which) has revealed exactly how your cheating was perpetrated".
Tracey McDermott, acting director of the enforcement and financial crime division, said: "This is another significant milestone in our fight against insider dealing. It demonstrates that we can successfully present the issues in a long and complex case so that a jury understands them and has the confidence to convict criminals involved in insider dealing rings."
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