WEBVTT - U.S. Joins Multinational Insider Trading Crackdown 0:00:03.480 --> 0:00:07.560 Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every 0:00:07.640 --> 0:00:10.440 day we bring you insight and analysis into the most 0:00:10.480 --> 0:00:13.399 important legal news of the day. You can find more 0:00:13.440 --> 0:00:18.040 episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud, 0:00:18.320 --> 0:00:22.920 and on Bloomberg dot com slash podcasts. Federal prosecutors are 0:00:22.960 --> 0:00:27.920 investigating an international network of traders suspected of infiltrating banks 0:00:27.920 --> 0:00:30.960 and companies and making tens of millions of dollars by 0:00:31.080 --> 0:00:35.440 using confidential information to trade ahead of media reports about 0:00:35.520 --> 0:00:39.720 takeover talks or merger announcements. That's according to Bloomberg sources. 0:00:39.920 --> 0:00:42.280 Joining me is Peter Handing, a professor at Wayne State 0:00:42.400 --> 0:00:46.960 University Law School. Peter explain this UH, this network that 0:00:47.120 --> 0:00:52.040 prosecutors are looking into, Well, what they're focusing on is 0:00:52.159 --> 0:00:57.320 that they were able to develop different sources inside UH 0:00:57.520 --> 0:01:00.560 investment banks, including the Wall Street Journal report ordered that 0:01:01.440 --> 0:01:05.480 the governments are looking at UM, someone who was inside 0:01:05.520 --> 0:01:10.360 City Bank in London. And really what makes this different 0:01:10.440 --> 0:01:14.759 from the typical insider trading case is that, at least 0:01:15.040 --> 0:01:19.480 according to the reports, that information was fed to journalists 0:01:19.560 --> 0:01:22.759 so that then it could get into the media, which 0:01:22.800 --> 0:01:26.000 of course will cause a stock to pop up at 0:01:26.040 --> 0:01:28.639 least somewhat, and that way they don't have to wait 0:01:29.120 --> 0:01:31.479 for any deal to be completed, because as we know, 0:01:32.040 --> 0:01:34.440 it's not necessarily the case that every deal is going 0:01:34.480 --> 0:01:37.520 to be completed, But trading ahead of the media report 0:01:38.080 --> 0:01:41.600 lets you at least make some money that way. So 0:01:42.080 --> 0:01:45.120 the traders here allegedly did a lot to cover their 0:01:45.160 --> 0:01:51.720 tracks using burner phones, shell companies, complex financial instruments. How 0:01:51.840 --> 0:01:58.480 much harder will that make investigating this Well, certainly the 0:01:58.520 --> 0:02:02.440 most white collar defend aren't very good about using burner phones, 0:02:02.560 --> 0:02:05.520 But if they use them in the right way, which 0:02:05.720 --> 0:02:07.960 was make one phone call and then get rid of it. 0:02:08.520 --> 0:02:12.200 For those of us UM who watch Breaking bad, then 0:02:12.880 --> 0:02:16.079 you know that is really going to make it much 0:02:16.120 --> 0:02:20.640 more difficult to trace out who their sources are. And 0:02:21.520 --> 0:02:25.799 using shell companies is especially in the United States, where 0:02:25.840 --> 0:02:28.800 you don't have to report who owns the company, then 0:02:29.520 --> 0:02:34.040 that is a pretty easy way to hide who's behind it. Now, 0:02:34.919 --> 0:02:39.960 you prosecutors are able to trace bank transactions and things 0:02:40.040 --> 0:02:43.760 like that, but the problem is once the money has 0:02:43.840 --> 0:02:47.480 left the United States or the United Kingdom or even France, 0:02:47.520 --> 0:02:50.520 who's also looking at this UM, it's going to be 0:02:50.639 --> 0:02:53.440 very hard to ever get it back. And if it 0:02:53.480 --> 0:02:57.200 goes into the banking system and you're not able to 0:02:57.280 --> 0:03:01.640 trace it, then that money is gone and proving a 0:03:01.720 --> 0:03:04.720 case is going to be very difficult if you can't 0:03:04.800 --> 0:03:10.040 follow the money. And so they are having, uh what 0:03:10.919 --> 0:03:13.880 often happens in these insider trading cases. They're having a 0:03:13.880 --> 0:03:17.360 lower level member of this syndicate who flipped and and 0:03:17.440 --> 0:03:21.800 that's how this really got going. That's right that there 0:03:21.960 --> 0:03:27.920 was excuse me, a someone in Serbia was arrested and 0:03:27.919 --> 0:03:32.840 then extradited to the United States. And you know, as 0:03:32.880 --> 0:03:36.560 long as you have someone on the inside who can 0:03:36.640 --> 0:03:39.960 point you in the right direction, that of course can 0:03:40.000 --> 0:03:42.840 be very helpful. And what we've seen that before, going 0:03:42.880 --> 0:03:46.560 back a decade with the Raj Raj Ratnam cases, where 0:03:47.040 --> 0:03:51.040 prosecutors got cooperating witnesses who would say, look at this trade, 0:03:51.080 --> 0:03:54.680 look at that trade. Um, getting someone on the inside 0:03:55.040 --> 0:04:00.600 is absolutely invaluable to investigators and prosecutors because is then 0:04:01.240 --> 0:04:03.720 you can try to trace the money, but you can 0:04:03.760 --> 0:04:07.440 also build your case by looking at well timed trades. 0:04:07.680 --> 0:04:11.200 And I think that's really what they're focusing on. Can 0:04:11.240 --> 0:04:13.360 they figure out who the source was and can they 0:04:13.400 --> 0:04:19.640 show these were very well timed trades. This investigation involves US, 0:04:19.839 --> 0:04:25.560 UK and French prosecutors operating on parallel tracks. How unusual 0:04:25.839 --> 0:04:30.680 is that and the cooperation among countries certainly. I mean 0:04:31.080 --> 0:04:35.000 it's unusual in the sense that typically the Department of 0:04:35.040 --> 0:04:39.120 Justice just conducts its own investigations. But if you're talking 0:04:39.160 --> 0:04:43.039 about and international ring, then of course you're going to 0:04:43.120 --> 0:04:48.880 have to get the cooperation from foreign regulators and foreign prosecutors. 0:04:48.920 --> 0:04:51.240 So this one is a little bit unusual in that 0:04:51.360 --> 0:04:54.760 I think we're going to see a lot of information sharing, 0:04:54.839 --> 0:04:58.840 which doesn't always happen, but here they're going to have 0:04:58.960 --> 0:05:01.840 to try to give each other their information if they 0:05:01.920 --> 0:05:05.640 ever hope to track this down and figure out who 0:05:05.760 --> 0:05:10.159 was the source inside the different investment banks or there's 0:05:10.200 --> 0:05:12.960 some talk that gifts were given to people in law 0:05:13.040 --> 0:05:16.080 firms and places like that, which of course those are 0:05:16.120 --> 0:05:20.559 always good sources of inside information, and so I would 0:05:20.560 --> 0:05:24.400 expect this will take time. So anybody thinking that we'll 0:05:24.400 --> 0:05:27.599 see charges in the next month or two, I think 0:05:27.600 --> 0:05:30.040 it's mistaken. This is a kind of case that's going 0:05:30.080 --> 0:05:33.680 to take months to develop. But once it is developed 0:05:33.720 --> 0:05:37.039 them I would expect we will see criminal charges filed. 0:05:37.960 --> 0:05:42.400 UK financial prosecutors did wrap up a trial and got 0:05:42.440 --> 0:05:46.400 some convictions. A former UBS compliance officer and her friend 0:05:46.440 --> 0:05:49.880 were sentenced to three years for insider trading after a 0:05:49.960 --> 0:05:53.880 London trial that featured accounts of lavish champagne fueled nights 0:05:53.920 --> 0:05:57.560 out of exclusive nightclubs, racking up eight thousand pound bills, 0:05:57.960 --> 0:06:00.880 a network of traders who only spoke on burner phones, 0:06:01.000 --> 0:06:07.160 and evidence stashed in a channel bag. I couldn't resist 0:06:07.200 --> 0:06:10.240 this one. Well, you know that this is almost like 0:06:10.360 --> 0:06:14.119 it's coming out of Billions or you know, some kind 0:06:14.160 --> 0:06:18.600 of television show. But um, in fact, you know the 0:06:18.920 --> 0:06:21.640 best way to hide yourself is to use a burner 0:06:21.680 --> 0:06:24.600 phone as long as you get rid of it and 0:06:25.600 --> 0:06:30.440 do your best not to leave any kind of paper trail. Um. 0:06:30.560 --> 0:06:33.400 The problem is going to be if they did contact 0:06:33.400 --> 0:06:36.279 people in the media, there could be enough of a 0:06:36.279 --> 0:06:40.240 paper trail there to build a case. So it's certainly 0:06:40.279 --> 0:06:43.640 going to be interesting in the Financial Conduct Authority won 0:06:43.720 --> 0:06:47.760 the conviction. Now they got sentenced to three years. Unlikely 0:06:47.800 --> 0:06:50.960 they will serve that full amount of time, but still 0:06:51.240 --> 0:06:53.920 the government might be able to get some cooperation out 0:06:53.960 --> 0:06:57.320 of them. Or the UK government, and that can open 0:06:57.520 --> 0:07:02.040 up a way to start to develop as so. Peter 0:07:02.920 --> 0:07:07.440 compare the prosecution of insider trading in the UK to 0:07:07.560 --> 0:07:10.480 the prosecution in the US, where we've had so many 0:07:10.520 --> 0:07:15.000 court rulings about what constitutes insider trading. Is it tougher 0:07:15.080 --> 0:07:18.320 here than it is there? Certainly it's tougher here than 0:07:18.360 --> 0:07:21.120 it is in the EU. UM In the United States 0:07:21.160 --> 0:07:25.120 you have to show a breach of fiduciary duty or 0:07:25.200 --> 0:07:28.680 what's called another duty of trust and confidence. In the 0:07:28.720 --> 0:07:32.960 EU it is what's called a possession theory. If you 0:07:33.080 --> 0:07:37.000 possess inside information and trade on it, you're guilty, and 0:07:37.200 --> 0:07:41.440 so it's probably easier to prove it in the UK 0:07:41.720 --> 0:07:44.160 or in the EU, and it's going to be in 0:07:44.200 --> 0:07:48.160 the United States. Although building a case here showing a 0:07:48.160 --> 0:07:52.240 breach of fiduciary duty is sometimes not all that difficult 0:07:52.280 --> 0:07:56.160 if you've got an insider who's tipping off. But UM, 0:07:56.200 --> 0:07:58.480 I would expect it's going to be easier in the 0:07:58.520 --> 0:08:01.760 EU to all the case by just showing that these 0:08:01.800 --> 0:08:05.720 people had inside information and then traded on it. That's 0:08:05.760 --> 0:08:09.840 a much simpler approach than in the United States. While 0:08:09.880 --> 0:08:13.600 we continue to watch these insider trading trials come to 0:08:13.640 --> 0:08:16.440 the forefront. Thanks so much, Peter. That's Peter Henny. He's 0:08:16.440 --> 0:08:20.640 a professor at Wayne State University Law School. Thanks for 0:08:20.680 --> 0:08:23.960 listening to the Bloomberg Law Podcast. You can subscribe and 0:08:24.000 --> 0:08:27.240 listen to the show on Apple Podcasts, SoundCloud, and on 0:08:27.320 --> 0:08:32.040 bloomberg dot com slash podcast. I'm June Brosso. This is 0:08:32.080 --> 0:08:32.680 Bloomberg