1 00:00:03,480 --> 00:00:07,560 Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every 2 00:00:07,640 --> 00:00:10,440 Speaker 1: day we bring you insight and analysis into the most 3 00:00:10,480 --> 00:00:13,399 Speaker 1: important legal news of the day. You can find more 4 00:00:13,440 --> 00:00:18,040 Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud, 5 00:00:18,320 --> 00:00:22,920 Speaker 1: and on Bloomberg dot com slash podcasts. Federal prosecutors are 6 00:00:22,960 --> 00:00:27,920 Speaker 1: investigating an international network of traders suspected of infiltrating banks 7 00:00:27,920 --> 00:00:30,960 Speaker 1: and companies and making tens of millions of dollars by 8 00:00:31,080 --> 00:00:35,440 Speaker 1: using confidential information to trade ahead of media reports about 9 00:00:35,520 --> 00:00:39,720 Speaker 1: takeover talks or merger announcements. That's according to Bloomberg sources. 10 00:00:39,920 --> 00:00:42,280 Speaker 1: Joining me is Peter Handing, a professor at Wayne State 11 00:00:42,400 --> 00:00:46,960 Speaker 1: University Law School. Peter explain this UH, this network that 12 00:00:47,120 --> 00:00:52,040 Speaker 1: prosecutors are looking into, Well, what they're focusing on is 13 00:00:52,159 --> 00:00:57,320 Speaker 1: that they were able to develop different sources inside UH 14 00:00:57,520 --> 00:01:00,560 Speaker 1: investment banks, including the Wall Street Journal report ordered that 15 00:01:01,440 --> 00:01:05,480 Speaker 1: the governments are looking at UM, someone who was inside 16 00:01:05,520 --> 00:01:10,360 Speaker 1: City Bank in London. And really what makes this different 17 00:01:10,440 --> 00:01:14,759 Speaker 1: from the typical insider trading case is that, at least 18 00:01:15,040 --> 00:01:19,480 Speaker 1: according to the reports, that information was fed to journalists 19 00:01:19,560 --> 00:01:22,759 Speaker 1: so that then it could get into the media, which 20 00:01:22,800 --> 00:01:26,000 Speaker 1: of course will cause a stock to pop up at 21 00:01:26,040 --> 00:01:28,639 Speaker 1: least somewhat, and that way they don't have to wait 22 00:01:29,120 --> 00:01:31,479 Speaker 1: for any deal to be completed, because as we know, 23 00:01:32,040 --> 00:01:34,440 Speaker 1: it's not necessarily the case that every deal is going 24 00:01:34,480 --> 00:01:37,520 Speaker 1: to be completed, But trading ahead of the media report 25 00:01:38,080 --> 00:01:41,600 Speaker 1: lets you at least make some money that way. So 26 00:01:42,080 --> 00:01:45,120 Speaker 1: the traders here allegedly did a lot to cover their 27 00:01:45,160 --> 00:01:51,720 Speaker 1: tracks using burner phones, shell companies, complex financial instruments. How 28 00:01:51,840 --> 00:01:58,480 Speaker 1: much harder will that make investigating this Well, certainly the 29 00:01:58,520 --> 00:02:02,440 Speaker 1: most white collar defend aren't very good about using burner phones, 30 00:02:02,560 --> 00:02:05,520 Speaker 1: But if they use them in the right way, which 31 00:02:05,720 --> 00:02:07,960 Speaker 1: was make one phone call and then get rid of it. 32 00:02:08,520 --> 00:02:12,200 Speaker 1: For those of us UM who watch Breaking bad, then 33 00:02:12,880 --> 00:02:16,079 Speaker 1: you know that is really going to make it much 34 00:02:16,120 --> 00:02:20,640 Speaker 1: more difficult to trace out who their sources are. And 35 00:02:21,520 --> 00:02:25,799 Speaker 1: using shell companies is especially in the United States, where 36 00:02:25,840 --> 00:02:28,800 Speaker 1: you don't have to report who owns the company, then 37 00:02:29,520 --> 00:02:34,040 Speaker 1: that is a pretty easy way to hide who's behind it. Now, 38 00:02:34,919 --> 00:02:39,960 Speaker 1: you prosecutors are able to trace bank transactions and things 39 00:02:40,040 --> 00:02:43,760 Speaker 1: like that, but the problem is once the money has 40 00:02:43,840 --> 00:02:47,480 Speaker 1: left the United States or the United Kingdom or even France, 41 00:02:47,520 --> 00:02:50,520 Speaker 1: who's also looking at this UM, it's going to be 42 00:02:50,639 --> 00:02:53,440 Speaker 1: very hard to ever get it back. And if it 43 00:02:53,480 --> 00:02:57,200 Speaker 1: goes into the banking system and you're not able to 44 00:02:57,280 --> 00:03:01,640 Speaker 1: trace it, then that money is gone and proving a 45 00:03:01,720 --> 00:03:04,720 Speaker 1: case is going to be very difficult if you can't 46 00:03:04,800 --> 00:03:10,040 Speaker 1: follow the money. And so they are having, uh what 47 00:03:10,919 --> 00:03:13,880 Speaker 1: often happens in these insider trading cases. They're having a 48 00:03:13,880 --> 00:03:17,360 Speaker 1: lower level member of this syndicate who flipped and and 49 00:03:17,440 --> 00:03:21,800 Speaker 1: that's how this really got going. That's right that there 50 00:03:21,960 --> 00:03:27,920 Speaker 1: was excuse me, a someone in Serbia was arrested and 51 00:03:27,919 --> 00:03:32,840 Speaker 1: then extradited to the United States. And you know, as 52 00:03:32,880 --> 00:03:36,560 Speaker 1: long as you have someone on the inside who can 53 00:03:36,640 --> 00:03:39,960 Speaker 1: point you in the right direction, that of course can 54 00:03:40,000 --> 00:03:42,840 Speaker 1: be very helpful. And what we've seen that before, going 55 00:03:42,880 --> 00:03:46,560 Speaker 1: back a decade with the Raj Raj Ratnam cases, where 56 00:03:47,040 --> 00:03:51,040 Speaker 1: prosecutors got cooperating witnesses who would say, look at this trade, 57 00:03:51,080 --> 00:03:54,680 Speaker 1: look at that trade. Um, getting someone on the inside 58 00:03:55,040 --> 00:04:00,600 Speaker 1: is absolutely invaluable to investigators and prosecutors because is then 59 00:04:01,240 --> 00:04:03,720 Speaker 1: you can try to trace the money, but you can 60 00:04:03,760 --> 00:04:07,440 Speaker 1: also build your case by looking at well timed trades. 61 00:04:07,680 --> 00:04:11,200 Speaker 1: And I think that's really what they're focusing on. Can 62 00:04:11,240 --> 00:04:13,360 Speaker 1: they figure out who the source was and can they 63 00:04:13,400 --> 00:04:19,640 Speaker 1: show these were very well timed trades. This investigation involves US, 64 00:04:19,839 --> 00:04:25,560 Speaker 1: UK and French prosecutors operating on parallel tracks. How unusual 65 00:04:25,839 --> 00:04:30,680 Speaker 1: is that and the cooperation among countries certainly. I mean 66 00:04:31,080 --> 00:04:35,000 Speaker 1: it's unusual in the sense that typically the Department of 67 00:04:35,040 --> 00:04:39,120 Speaker 1: Justice just conducts its own investigations. But if you're talking 68 00:04:39,160 --> 00:04:43,039 Speaker 1: about and international ring, then of course you're going to 69 00:04:43,120 --> 00:04:48,880 Speaker 1: have to get the cooperation from foreign regulators and foreign prosecutors. 70 00:04:48,920 --> 00:04:51,240 Speaker 1: So this one is a little bit unusual in that 71 00:04:51,360 --> 00:04:54,760 Speaker 1: I think we're going to see a lot of information sharing, 72 00:04:54,839 --> 00:04:58,840 Speaker 1: which doesn't always happen, but here they're going to have 73 00:04:58,960 --> 00:05:01,840 Speaker 1: to try to give each other their information if they 74 00:05:01,920 --> 00:05:05,640 Speaker 1: ever hope to track this down and figure out who 75 00:05:05,760 --> 00:05:10,159 Speaker 1: was the source inside the different investment banks or there's 76 00:05:10,200 --> 00:05:12,960 Speaker 1: some talk that gifts were given to people in law 77 00:05:13,040 --> 00:05:16,080 Speaker 1: firms and places like that, which of course those are 78 00:05:16,120 --> 00:05:20,559 Speaker 1: always good sources of inside information, and so I would 79 00:05:20,560 --> 00:05:24,400 Speaker 1: expect this will take time. So anybody thinking that we'll 80 00:05:24,400 --> 00:05:27,599 Speaker 1: see charges in the next month or two, I think 81 00:05:27,600 --> 00:05:30,040 Speaker 1: it's mistaken. This is a kind of case that's going 82 00:05:30,080 --> 00:05:33,680 Speaker 1: to take months to develop. But once it is developed 83 00:05:33,720 --> 00:05:37,039 Speaker 1: them I would expect we will see criminal charges filed. 84 00:05:37,960 --> 00:05:42,400 Speaker 1: UK financial prosecutors did wrap up a trial and got 85 00:05:42,440 --> 00:05:46,400 Speaker 1: some convictions. A former UBS compliance officer and her friend 86 00:05:46,440 --> 00:05:49,880 Speaker 1: were sentenced to three years for insider trading after a 87 00:05:49,960 --> 00:05:53,880 Speaker 1: London trial that featured accounts of lavish champagne fueled nights 88 00:05:53,920 --> 00:05:57,560 Speaker 1: out of exclusive nightclubs, racking up eight thousand pound bills, 89 00:05:57,960 --> 00:06:00,880 Speaker 1: a network of traders who only spoke on burner phones, 90 00:06:01,000 --> 00:06:07,160 Speaker 1: and evidence stashed in a channel bag. I couldn't resist 91 00:06:07,200 --> 00:06:10,240 Speaker 1: this one. Well, you know that this is almost like 92 00:06:10,360 --> 00:06:14,119 Speaker 1: it's coming out of Billions or you know, some kind 93 00:06:14,160 --> 00:06:18,600 Speaker 1: of television show. But um, in fact, you know the 94 00:06:18,920 --> 00:06:21,640 Speaker 1: best way to hide yourself is to use a burner 95 00:06:21,680 --> 00:06:24,600 Speaker 1: phone as long as you get rid of it and 96 00:06:25,600 --> 00:06:30,440 Speaker 1: do your best not to leave any kind of paper trail. Um. 97 00:06:30,560 --> 00:06:33,400 Speaker 1: The problem is going to be if they did contact 98 00:06:33,400 --> 00:06:36,279 Speaker 1: people in the media, there could be enough of a 99 00:06:36,279 --> 00:06:40,240 Speaker 1: paper trail there to build a case. So it's certainly 100 00:06:40,279 --> 00:06:43,640 Speaker 1: going to be interesting in the Financial Conduct Authority won 101 00:06:43,720 --> 00:06:47,760 Speaker 1: the conviction. Now they got sentenced to three years. Unlikely 102 00:06:47,800 --> 00:06:50,960 Speaker 1: they will serve that full amount of time, but still 103 00:06:51,240 --> 00:06:53,920 Speaker 1: the government might be able to get some cooperation out 104 00:06:53,960 --> 00:06:57,320 Speaker 1: of them. Or the UK government, and that can open 105 00:06:57,520 --> 00:07:02,040 Speaker 1: up a way to start to develop as so. Peter 106 00:07:02,920 --> 00:07:07,440 Speaker 1: compare the prosecution of insider trading in the UK to 107 00:07:07,560 --> 00:07:10,480 Speaker 1: the prosecution in the US, where we've had so many 108 00:07:10,520 --> 00:07:15,000 Speaker 1: court rulings about what constitutes insider trading. Is it tougher 109 00:07:15,080 --> 00:07:18,320 Speaker 1: here than it is there? Certainly it's tougher here than 110 00:07:18,360 --> 00:07:21,120 Speaker 1: it is in the EU. UM In the United States 111 00:07:21,160 --> 00:07:25,120 Speaker 1: you have to show a breach of fiduciary duty or 112 00:07:25,200 --> 00:07:28,680 Speaker 1: what's called another duty of trust and confidence. In the 113 00:07:28,720 --> 00:07:32,960 Speaker 1: EU it is what's called a possession theory. If you 114 00:07:33,080 --> 00:07:37,000 Speaker 1: possess inside information and trade on it, you're guilty, and 115 00:07:37,200 --> 00:07:41,440 Speaker 1: so it's probably easier to prove it in the UK 116 00:07:41,720 --> 00:07:44,160 Speaker 1: or in the EU, and it's going to be in 117 00:07:44,200 --> 00:07:48,160 Speaker 1: the United States. Although building a case here showing a 118 00:07:48,160 --> 00:07:52,240 Speaker 1: breach of fiduciary duty is sometimes not all that difficult 119 00:07:52,280 --> 00:07:56,160 Speaker 1: if you've got an insider who's tipping off. But UM, 120 00:07:56,200 --> 00:07:58,480 Speaker 1: I would expect it's going to be easier in the 121 00:07:58,520 --> 00:08:01,760 Speaker 1: EU to all the case by just showing that these 122 00:08:01,800 --> 00:08:05,720 Speaker 1: people had inside information and then traded on it. That's 123 00:08:05,760 --> 00:08:09,840 Speaker 1: a much simpler approach than in the United States. While 124 00:08:09,880 --> 00:08:13,600 Speaker 1: we continue to watch these insider trading trials come to 125 00:08:13,640 --> 00:08:16,440 Speaker 1: the forefront. Thanks so much, Peter. That's Peter Henny. He's 126 00:08:16,440 --> 00:08:20,640 Speaker 1: a professor at Wayne State University Law School. Thanks for 127 00:08:20,680 --> 00:08:23,960 Speaker 1: listening to the Bloomberg Law Podcast. You can subscribe and 128 00:08:24,000 --> 00:08:27,240 Speaker 1: listen to the show on Apple Podcasts, SoundCloud, and on 129 00:08:27,320 --> 00:08:32,040 Speaker 1: bloomberg dot com slash podcast. I'm June Brosso. This is 130 00:08:32,080 --> 00:08:32,680 Speaker 1: Bloomberg