Ex-Futures Trader Gets 4 Years for Using Insider Tips
A self-employed London trader was sentenced to four years in prison after being convicted of making 692,644 pounds ($1 million) spread-betting with inside tips he received about forthcoming mergers.
Richard Joseph was found guilty on all counts by a jury in London today and sentenced to four years in prison, said Chris Hamilton, a spokesman for the Financial Services Authority. Joseph was accused of trading on information he received from Ersin Mustafa, who worked in the print room at JPMorgan Chase & Co. (JPM)’s Cazenove unit.
“It is plain to me that you knew precisely what you were doing,” Judge Jeffrey Pegden said when giving the sentence.
Joseph made payments of more than 268,000 pounds to Mustafa, who also passed on tips from his brother, Ali, who worked in the print room at UBS AG (UBSN), prosecutors said.
Joseph’s case was related to the FSA’s Operation Saturn, which led to the arrests of eight men at the height of the financial crisis in 2008 as the regulator was under fire for failing to do enough to combat market abuse. Six people, including Ali Mustafa, were found guilty at a separate trial last year. Ersin Mustafa fled the U.K. in December 2009 and the regulator believes he is in Northern Cyprus.
“For a time he no doubt thought this was easy money,” FSA director of enforcement Tracey McDermott said in a statement after Joseph’s sentencing. “This verdict should send a clear message about the consequences to anyone else who might be tempted to do the same.”
Joseph, who worked for himself since the summer of 2000, was charged with conspiring to trade on shares of Abbot Group Ltd., Fiberweb Plc (FWEB), IMI Plc, Expro International Group Plc, Greene King Plc and Aero Inventory Plc, based on the inside information between September 2007 and July 2008.
Joseph pleaded not guilty to six charges of conspiracy to commit insider trading. He had worked in the finance industry in London in the late 1990s, for London Capital Group Holdings Plc, an online-trading firm, and International Clearing Associates (London) Ltd.
The second firm, a futures-trading company, collapsed in 2000 after being shut down by regulators for not having enough financial resources.
Joseph, who was born in London, worked as a broker until 1999, when he began trading German government bonds. He testified during the trial that he was self-taught.
He stopped trading in 2007 because “the market dynamics changed and it became harder and harder to predict and it became less fun,” he said. By the time he retired, he was in his late 30s and had 3.5 million pounds in the bank, he said.
He met Mustafa in late 2007 at a friend’s wedding. They later met up against at a bar in London’s financial district, where Mustafa tried to get Joseph to invest in a property development in Cyprus, then gave him a stock tip.
“He said he knows people in the city and they give him tips on stocks and shares,” said Joseph, who had never traded shares before. “It was all about his contacts, he didn’t say he knew anything about stocks or who his contacts were.”
Joseph didn’t act on the first tip, but he saw that the shares did go up. The second time they met, Mustafa gave him another tip. This time, Joseph traded on it, and lost money. The following time, he made a gain, he said.
Trading on the tips from Mustafa, Joseph regularly had trading exposure of more than a million pounds, and once as much as 3 million pounds, the FSA said at trial.
The FSA arrested Joseph in May 2010. At the time, he gave a written statement to investigators denying he received inside information. He told regulators he met Mustafa in 2007 and “may have” discussed securities with him.
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