Case against former Deloitte partner sees watchdogs overcome border restrictions.
A ’unique’ case that underlines the closer cooperation between financial regulators on both sides of the Atlantic ratcheted up a notch last week, when the Securities and Exchange Commission (SEC) brought civil charges against a former Deloitte partner in California for insider trading.
The SEC has alleged that Arnold McClellan, along with his wife Annabel, leaked confidential information to his British brother-in-law James Sanders, co-founder of brokerage Blue Index.
The McClellans are alleged to have made $3m (£1.92m) profit on trades, while Sanders and his wife Miranda are said to have shared in a total of $20m generated by at least seven trades based on leaked information.
Last month the Financial Services Authority (FSA), which is leading the case, charged five individuals with 17 counts of insider dealing. It is understood to be the largest insider dealing case, in terms of the funds raised, the regulator has ever handled.
Name partner Nanci Clarence of San Francisco firm Clarence & Dyer is representing the McClellans, while four UK firms are lining up to represent the five individuals charged by the FSA.
Irwin Mitchell partner Kevin Robinson is representing the Sanders, while Corker Binning name partner David Corker, Bindmans partner Katie Wheatley and Jill Lorimer, an associate at Kingsley Napley, are acting for the other three UK defendants.
Robinson says his clients completely deny the allegations.
“There’s no evidence – it’s all based on circumstance and inference,” Robinson stresses.
The cross-border case has several novel aspects. Insider trading cases usually focus on one stock, whereas this case is a question of alleged trading over a number of stocks. It is also unusual in that the information was allegedly being used both for private purposes and for wider dissemination among clients of Blue Index.
“Normally in insider trading, the individual concerned keeps the information close to their chest,” says one lawyer.
Lawyers have also pointed to the level of cooperation between the regulators as being unique on what is effectively the same case.
“It’s not strictly accurate to describe the McClellans as co-defendants,” says one lawyer close to the case. “It’s the same case, the two are symbiotic, but the SEC is pursuing a civil enforcement action, while in the UK it’s scheduled for a criminal trial.”
Peters & Peters partner Michael O’Kane, who is not involved in the case, says that since the economic downturn the FSA and SEC have been in frequent communication regarding cases that involve both the US and UK.
“The same is true of the SFO and the Department of Justice [DoJ],” adds O’Kane. “The parallels in other parts of the market are clear. In corruption you’re clearly seeing the DoJ and SFO working hand-in-hand, while in cartels you’re seeing the DoJ and the Office of Fair Trading doing the same. On this case there was clearly not only significant coordination and communication of evidence, but also on the timing of the charges.”
In a related issue, one of the US defendants, Annabel McClellan, was arrested on 30 November by agents from the FBI for obstructing and impeding the due and proper administration of the law.
“This investigation is the first time the DoJ’s coordinated a criminal investigation with both the SEC and the FSA in London,” US attorney for the Northern District of California Melinda Haag says. “It demonstrates our ability and commitment to working with international authorities to investigate financial fraud overseas.”
A pre-trial hearing for the five UK defendants is scheduled for 20 December at Westminster Magistrates’ Court.