Arresting Innocent People All Part Of UK Regulator's Plan To Scare The Insider Trading Out Of Them

Author:
Updated:
Original:

Carl Linderum was getting ready for work one morning at his London home when he heard a pounding on his door. He figured the group of men outside were employees of his gas provider, there to badger him over a disputed bill. In fact, they were plainclothes police officers and agents from the U.K.'s financial regulator. They had come to arrest the 36-year-old trader, who ran a small hedge fund, for suspected insider trading. The arrests last February of Mr. Linderum and a colleague led to the collapse of their roughly $100 million hedge fund, Lodestone Investment Partners LLP. Seven people lost their jobs. Nearly 10 months later, the Financial Conduct Authority dropped the investigation of the two Lodestone executives and a third trader from another hedge fund who was arrested at the same time...Margaret Cole, a top agency enforcement official from 2005 to 2012, says high-profile raids and arrests are a key component of the strategy—even if they don't yield convictions. "A large part of the deterrent effect comes from the regulator doing this, and you don't know when they might pop up and do it again," she says. [WSJ via Matt]

Related

Connection To A Company Called "Yeah Baby" Not Even The Best Part Of "High School Buddies" Insider Trading Scam

Over the past several years, much has been made about the supposed incompetence of the Securities and Exchange Commission. The regulator failed to realize Bernie Madoff had been running an illegitimate Ponzi scheme, despite more or less being told by Bernie Madoff himself, "I am running an illegitimate Ponzi scheme." It went after David Einhorn, when it should have been going after Allied Capital, the company the hedge fund manager told them was committing fraud. Its proposal for stepping up investigators' games was to start a Fraud College.* Until recently, it employed individuals in the office responsible for "ensuring exchanges follow guidelines concerning...computer audits, security, and capacity" who had "little or no experience with exchange technical matters." At this point, there have been so many stories about the SEC getting things wrong that the default is to assume it fucked up, even when that is not actually the case. What's more, even when Team Schapiro is on top of its game, resources are so strained that many scams that should be caught fall through the cracks. So you can maybe understand why a group of "high school buddies," along with a few other guys they picked up along the way, who were engaging in securities fraud, weren't too worried about getting caught.