The arrest of a former BlackRock Inc. fund manager may move the U.K. markets regulator from small-fry insider-trading cases to its first big fish after years of criticism for pursuing dentists and print-room workers.
The Financial Conduct Authority arrested Mark Lyttleton, who once ran a BlackRock fund with as much as 2 billion pounds ($3 billion) of assets in London on April 30, according to two people familiar with the case. That follows the arrests of managers at hedge funds in two unrelated probes this year.
“I think it’s been a big success,” Jamie Symington, the head of the wholesale group enforcement division at the FCA, who oversees insider-trading prosecutions, said in an interview before the Lyttletons’ arrests.
The declaration marks a shift in tone from two years ago, when Tracey McDermott, the head of enforcement at the FSA, said they “recognize the need to go after bigger fry” who are “causing the most damage to the market.”
The regulator was “determined to take insider-dealing enforcement right into the heart of the city,” said McDermott, who is Symington’s boss at the FCA.
At the time, the watchdog was under pressure to secure a conviction that was comparable to U.S. prosecutors’ case against Galleon Group LLC co-founder Raj Rajaratnam. While the focus of British politicians and the media has shifted from insider trading to the manipulation of Libor and other interest-rate benchmarks, the recent arrests show the FCA has remained committed to cracking down on insider trading.
“You’d sort of assume that with all the huge resources attributed to Libor, it must be very difficult to be equally focused on other areas of market integrity,” said Arun Srivastava, the head of Baker & McKenzie’s financial-services group in London. “These criminal cases are hugely labor-intensive, too.”
The 41-year-old Lyttleton, who was based in BlackRock’s London office, may be the regulator’s highest-profile arrest so far. He was known for astute picks among U.K. small and mid-cap companies and in 2005 was chosen to be the manager of a new flagship product, which became BlackRock U.K. Absolute Alpha Fund.
2 Billion Pounds
It grew to about 2 billion pounds of assets by 2008. The fund had 382 million pounds of assets as of April 30, according to data compiled by Bloomberg. Lyttleton left his job as a fund manager at BlackRock in London before he was detained.
Neither the FCA nor Blackrock would provide contact information for an attorney for the Lyttletons. A man who answered the phone at Anamaya in west London, where his wife, Delphine Lyttleton, is listed as a practitioner in homeopathy, life coaching and meditation, said she was unavailable to comment. He said she rented space from the business.
In separate probes in February, the regulator’s predecessor, the Financial Services Authority, arrested a former portfolio manager at GLG Partners Inc. and two founders of the Lodestone Natural Resources hedge fund.
Some of the regulator’s insider-trading cases from several years ago are just coming to fruition as well. That includes a former managing director at Altium Capital Ltd. who was charged in April as part of an insider-trading ring and will face trial next year along with a former Deutsche Bank AG managing director and four other men.
The charges stem from the regulator’s probe known as Operation Tabernula, Latin for little tavern. Eight people have been charged in the probe. One of the eight, former Legal & General Group Plc equities trader Paul Milsom, pleaded guilty and was sentenced in March to two years in prison.
“It’s always been our intention to focus on market professionals,” Symington said. “Our earliest criminal prosecutions did not all involve market professionals, but it was important, nonetheless, to establish our presence as a criminal prosecutor. Having achieved some early success, we wanted to move on from that, move into the heart of it, and that’s what we’ve done.”
The regulator hadn’t prosecuted a single insider-trading case until 2008, when it successfully took on the former general counsel of a Motorola Inc. unit and later that year a former partner at JPMorgan Chase & Co.’s Cazenove & Co. unit in London.
Since then, it has steadily increased the profiles of its targets. It went after a dentist in 2009, then workers in the print rooms of UBS AG and JPMorgan.
“Until two, three years ago they were being accused of taking a slightly relaxed approach to insider dealing,” Srivastava said. “If you’re pursuing a policy of credible deterrence, then picking on smaller fry isn’t going to send the message.”
Since then, “they’ve crossed that hurdle,” Srivastava said.
The regulator is getting an increasing number of suspicious transaction reports, as many as about 100 a month from about 50 two years ago. It has stronger tools for analyzing data and its employees are getting better with experience at detecting market abuse, Symington said.
“We won’t be taking our foot off the pedal,” Symington said. “We have no intent to increase or decrease the resources we give it. With the experience we have now under our belt, even with the same level of staffing, we should be more prolific at least.”