- Five men on trial in largest U.K. insider trading prosecution
- Group made $700,000 on Scottish & Newcastle bets before deal
A former Deutsche Bank managing director at the center of the U.K.’s biggest insider trading case said he was uncomfortable with the 281,000 pounds ($393,000) he made from betting on Scottish & Newcastle shares just before a takeover bid. But the large profit came from “human error,” not the use of confidential information, he said.
Martyn Dodgson, one of five men on trial in London, was working at Lehman Brothers, an adviser for Carlsberg, which eventually bought the brewer with Heineken NV for 7.8 billion pounds. Dodgson said that he wasn’t on the relevant Lehman teams and didn’t know about the 2007 announcement. He denied discussing the brewer with fellow defendant Andrew Hind, who made trades related to the company a day before the bid went public.
The size of the Scottish & Newcastle profit was in the result of "human error," Dodgson told the court Tuesday, his second day of testimony. Hind’s investment had exposed him to higher levels of risk than he would have been comfortable with had he known about the trades. Hind informed Dodgson about the profit in early December 2007, he said.
"The level of risk relative to my knowledge of the sector would have made me uncomfortable," Dodgson said. "Even without the human error there would’ve been a substantial profit. It was essentially an error that had gone in our collective favor."
The trial is the culmination a probe that started with several arrests in 2010. Prosecutors from the Financial Conduct Authority say the men made 7.4 million pounds in profits trading six stocks, including Sky Plc and Legal & General Group Plc. The group made about 500,000 pounds from the Scottish & Newcastle trades, and Dodgson said he personally made 281,000 pounds.
Markets had been anticipating a takeover of Scottish & Newcastle, and the share price had been bid up before the announcement of the offer.
"It was clear from the evidence that the market was expecting something to happen," the 44-year-old Dodgson said. "If the market is pricing in a 70 percent expectation that a transaction will occur," that means investment bankers are working on a transaction.
The FCA alleges Dodgson, Andrew "Grant" Harrison, a former stockbroker at Panmure Gordon & Co., Benjamin Anderson, a 71-year-old private day trader, former Aria Capital Ltd. director Iraj Parvizi, and Hind, 55, worked together to trade securities with inside information between November 2006 and March 2010. The FCA claims Dodgson and Harrison passed price-sensitive information from their jobs in the corporate broking departments of big firms to Hind, who then passed it to Anderson and Parvizi to trade on.
After qualifying as a chartered accountant Dodgson worked for Cazenove, UBS Group AG and Morgan Stanley as a corporate broker, he said during testimony.