A former Legal & General Group Plc (LGEN) equities trader was sentenced to two years in prison for passing inside information on block trades 28 times to an independent stockbroker, giving the U.K. finance regulator the first jail term tied to its largest-ever insider-trading case.
Paul Milsom, 45, pleaded guilty in January to one count of passing inside information from October 2008 until March 2010 to Graeme Shelley, an independent broker who previously worked at Novum Securities Ltd. Milsom gave Shelley tips about large share orders Legal & General was about to make so the broker could place spread bets and trade contracts for difference, according to the U.K. Financial Services Authority. Milsom will have to serve about half of the sentence.
Judge Jeffrey Pegden at Southwark Crown Court told Milsom today that his actions were “deliberate, planned and dishonest and you took certain measures to hide your criminal conduct.”
Shelley was charged with insider trading in companies including broadcaster ITV Plc (ITV) and hasn’t yet entered a plea. He is scheduled to appear at the same court on April 9.
The case is part of the investigation into the front- running of block trades, known as Operation Tabernula, Latin for little tavern. The regulator charged five other individuals last year in the case, which it has called its “largest and most complex insider dealing investigation to date.”
The FSA arrested seven people, including employees of Deutsche Bank AG and Moore Capital Management LLC, and raided 16 addresses in London and southeast England in March 2010 as part of the probe. Milsom was arrested in February last year. The first five defendants who have been charged haven’t entered pleas.
Milsom received about 40 percent of the profits and Shelley took the rest, Neil Saunders, a lawyer for the FSA, said. Milsom made about 165,000 pounds ($248,400) in profit from the tips to Shelley, and more than 80,000 pounds from tips to another individual, who wasn’t identified at the hearing.
Saunders told the judge that Milsom agreed to cooperate at the earliest possible stage and will pay a confiscation order of 245,657 pounds.
Legal & General said previously that they assisted the FSA and that Milsom wasn’t in control of any client funds.
Simon Ray, a lawyer for Milsom, said his client is remorseful and has spent the time since his arrest arranging his finances so he could pay back the full amount that he made. He’s lost the job he “loved” and many of his friends, Ray said.
“Whilst he can’t change history, he’s done all he can to put things right,” the attorney said.
Pegden said he took into account that Milsom “made the fullest possible and the frankest possible disclosure” to the FSA and accepted responsibility for the crime.
The FSA linked Milsom to Tabernula after they searched Shelley’s home and office in 2010. One of the documents seized was a handwritten note detailing the trades he was making, with the letters ‘MP’ on the pages, Saunders said. The regulator said the only “obvious connection” was to Legal & General, and the only person who had dealt with all of the trades was Milsom.
Within days of Milsom’s arrest, he hired the law firm Corker Binning and reached out to the FSA about cooperating. He told them about the tips he’d made to the second individual.
Milsom, who had worked for Legal & General for 12 years, had used pay-as-you-go phones to communicate with Shelley over 17 months. In all, the scheme netted around 402,000 pounds. The two would meet at pubs in London’s financial district, where Shelley would withdraw cash from nearby banks to pay him, according to the regulator.
The block trades being placed by Legal & General were sometimes as much as 900 percent of the previous day’s volume, the FSA said at a previous hearing.
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