Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every
Speaker 1: day we bring you insight and analysis into the most
Speaker 1: important legal news of the day. You can find more
Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud,
Speaker 1: and on Bloomberg dot com slash podcasts. Federal prosecutors are
Speaker 1: investigating an international network of traders suspected of infiltrating banks
Speaker 1: and companies and making tens of millions of dollars by
Speaker 1: using confidential information to trade ahead of media reports about
Speaker 1: takeover talks or merger announcements. That's according to Bloomberg sources.
Speaker 1: Joining me is Peter Handing, a professor at Wayne State
Speaker 1: University Law School. Peter explain this UH, this network that
Speaker 1: prosecutors are looking into, Well, what they're focusing on is
Speaker 1: that they were able to develop different sources inside UH
Speaker 1: investment banks, including the Wall Street Journal report ordered that
Speaker 1: the governments are looking at UM, someone who was inside
Speaker 1: City Bank in London. And really what makes this different
Speaker 1: from the typical insider trading case is that, at least
Speaker 1: according to the reports, that information was fed to journalists
Speaker 1: so that then it could get into the media, which
Speaker 1: of course will cause a stock to pop up at
Speaker 1: least somewhat, and that way they don't have to wait
Speaker 1: for any deal to be completed, because as we know,
Speaker 1: it's not necessarily the case that every deal is going
Speaker 1: to be completed, But trading ahead of the media report
Speaker 1: lets you at least make some money that way. So
Speaker 1: the traders here allegedly did a lot to cover their
Speaker 1: tracks using burner phones, shell companies, complex financial instruments. How
Speaker 1: much harder will that make investigating this Well, certainly the
Speaker 1: most white collar defend aren't very good about using burner phones,
Speaker 1: But if they use them in the right way, which
Speaker 1: was make one phone call and then get rid of it.
Speaker 1: For those of us UM who watch Breaking bad, then
Speaker 1: you know that is really going to make it much
Speaker 1: more difficult to trace out who their sources are. And
Speaker 1: using shell companies is especially in the United States, where
Speaker 1: you don't have to report who owns the company, then
Speaker 1: that is a pretty easy way to hide who's behind it. Now,
Speaker 1: you prosecutors are able to trace bank transactions and things
Speaker 1: like that, but the problem is once the money has
Speaker 1: left the United States or the United Kingdom or even France,
Speaker 1: who's also looking at this UM, it's going to be
Speaker 1: very hard to ever get it back. And if it
Speaker 1: goes into the banking system and you're not able to
Speaker 1: trace it, then that money is gone and proving a
Speaker 1: case is going to be very difficult if you can't
Speaker 1: follow the money. And so they are having, uh what
Speaker 1: often happens in these insider trading cases. They're having a
Speaker 1: lower level member of this syndicate who flipped and and
Speaker 1: that's how this really got going. That's right that there
Speaker 1: was excuse me, a someone in Serbia was arrested and
Speaker 1: then extradited to the United States. And you know, as
Speaker 1: long as you have someone on the inside who can
Speaker 1: point you in the right direction, that of course can
Speaker 1: be very helpful. And what we've seen that before, going
Speaker 1: back a decade with the Raj Raj Ratnam cases, where
Speaker 1: prosecutors got cooperating witnesses who would say, look at this trade,
Speaker 1: look at that trade. Um, getting someone on the inside
Speaker 1: is absolutely invaluable to investigators and prosecutors because is then
Speaker 1: you can try to trace the money, but you can
Speaker 1: also build your case by looking at well timed trades.
Speaker 1: And I think that's really what they're focusing on. Can
Speaker 1: they figure out who the source was and can they
Speaker 1: show these were very well timed trades. This investigation involves US,
Speaker 1: UK and French prosecutors operating on parallel tracks. How unusual
Speaker 1: is that and the cooperation among countries certainly. I mean
Speaker 1: it's unusual in the sense that typically the Department of
Speaker 1: Justice just conducts its own investigations. But if you're talking
Speaker 1: about and international ring, then of course you're going to
Speaker 1: have to get the cooperation from foreign regulators and foreign prosecutors.
Speaker 1: So this one is a little bit unusual in that
Speaker 1: I think we're going to see a lot of information sharing,
Speaker 1: which doesn't always happen, but here they're going to have
Speaker 1: to try to give each other their information if they
Speaker 1: ever hope to track this down and figure out who
Speaker 1: was the source inside the different investment banks or there's
Speaker 1: some talk that gifts were given to people in law
Speaker 1: firms and places like that, which of course those are
Speaker 1: always good sources of inside information, and so I would
Speaker 1: expect this will take time. So anybody thinking that we'll
Speaker 1: see charges in the next month or two, I think
Speaker 1: it's mistaken. This is a kind of case that's going
Speaker 1: to take months to develop. But once it is developed
Speaker 1: them I would expect we will see criminal charges filed.
Speaker 1: UK financial prosecutors did wrap up a trial and got
Speaker 1: some convictions. A former UBS compliance officer and her friend
Speaker 1: were sentenced to three years for insider trading after a
Speaker 1: London trial that featured accounts of lavish champagne fueled nights
Speaker 1: out of exclusive nightclubs, racking up eight thousand pound bills,
Speaker 1: a network of traders who only spoke on burner phones,
Speaker 1: and evidence stashed in a channel bag. I couldn't resist
Speaker 1: this one. Well, you know that this is almost like
Speaker 1: it's coming out of Billions or you know, some kind
Speaker 1: of television show. But um, in fact, you know the
Speaker 1: best way to hide yourself is to use a burner
Speaker 1: phone as long as you get rid of it and
Speaker 1: do your best not to leave any kind of paper trail. Um.
Speaker 1: The problem is going to be if they did contact
Speaker 1: people in the media, there could be enough of a
Speaker 1: paper trail there to build a case. So it's certainly
Speaker 1: going to be interesting in the Financial Conduct Authority won
Speaker 1: the conviction. Now they got sentenced to three years. Unlikely
Speaker 1: they will serve that full amount of time, but still
Speaker 1: the government might be able to get some cooperation out
Speaker 1: of them. Or the UK government, and that can open
Speaker 1: up a way to start to develop as so. Peter
Speaker 1: compare the prosecution of insider trading in the UK to
Speaker 1: the prosecution in the US, where we've had so many
Speaker 1: court rulings about what constitutes insider trading. Is it tougher
Speaker 1: here than it is there? Certainly it's tougher here than
Speaker 1: it is in the EU. UM In the United States
Speaker 1: you have to show a breach of fiduciary duty or
Speaker 1: what's called another duty of trust and confidence. In the
Speaker 1: EU it is what's called a possession theory. If you
Speaker 1: possess inside information and trade on it, you're guilty, and
Speaker 1: so it's probably easier to prove it in the UK
Speaker 1: or in the EU, and it's going to be in
Speaker 1: the United States. Although building a case here showing a
Speaker 1: breach of fiduciary duty is sometimes not all that difficult
Speaker 1: if you've got an insider who's tipping off. But UM,
Speaker 1: I would expect it's going to be easier in the
Speaker 1: EU to all the case by just showing that these
Speaker 1: people had inside information and then traded on it. That's
Speaker 1: a much simpler approach than in the United States. While
Speaker 1: we continue to watch these insider trading trials come to
Speaker 1: the forefront. Thanks so much, Peter. That's Peter Henny. He's
Speaker 1: a professor at Wayne State University Law School. Thanks for
Speaker 1: listening to the Bloomberg Law Podcast. You can subscribe and
Speaker 1: listen to the show on Apple Podcasts, SoundCloud, and on
Speaker 1: bloomberg dot com slash podcast. I'm June Brosso. This is
Speaker 1: Bloomberg