Mafia-Style M&A

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Investment banks in London may be vulnerable to infiltration by “organized criminals,” UK regulators said yesterday. The Financial Services Authority issued a warning that UK firms were too lax about preventing their own staffs from leaking insider information in takeover situation. The warning comes after studies which have suggested that insider trading takes place in connection with a quarter of M&A deals in London.
It’s hardly surprising that investment banks might be targeted for “mafia-style infiltration.” Over a year ago, the UK’s Serious Organized Crime Agency warned that “new age” mafioso “plants” were a serious threat to UK companies attacking computer systems. The vast fortunes of the financial industry, and lax enforcement of insider trading regulations, must make UK investment banking a very attractive target for organized crime.
In the US, organized crime has long been interested in finance. As long as eight years ago, Gary Weiss was writing articles in Business Week showing that “the Mob is far more active on Wall Street than might appear from the public pronouncements of regulators and law enforcement officials.” His 2003 book, Born to Steal, is chock full of examples of the role of organized crime in securities markets. Organized crime’s role in pump-and-dump boiler room operations is so well known that it was prominently featured in several episodes of the Sopranos television series on HBO.
A bit of caution, however, is probably in order whenever regulators start issuing warnings of this sort, particularly when they employ the alarming suggestions of “mafia-style” criminality. The FSA has been calling for stronger enforcement powers and bigger budgets lately, and this report certainly serves to add urgency to their cause. And measures designed to crack down on the worst of criminals seldom stay confined to their original targets. In the US, anti-racketeering laws that were passed to aid federal law enforcement’s crackdown on the Mafia are now regularly used against white-collar criminals.
FSA warns of criminal gangs cashing in on insider dealing [Times of London]

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