Innocent’s loss

The FSA’s pursuit of Andrew Rimmington and two others for insider trading failed when all three were found not guilty. But is it fair that the loss of his job can be written off as collateral damage?

This is the story of three people who were investigated by the FSA for their part in an alleged insider-trading ring. The main plot involves two lawyers, one of whom was sacked, who were put on trial for making £80,000 on a single deal.

Under pressure from politicians to raise its game, the FSA is perceived by some to have become overconfident in its pursuit of white-collar criminals. The lawyers at the centre of this furore were put under intense scrutiny before being acquitted. They are now looking to restore their reputations.

FSA gets tough

The collapse of the global markets put the spotlight on regulators around the world. Faced with heavy criticism, the FSA declared in early 2008 the start of a crackdown. Insider trading in the City was rife, and Margaret Cole, the FSA’s director of enforcement, announced: “Criminals in suits masquerading as City professionals will be seen for what they are and will face the consequences.”

Behind closed doors the regulator was – and still is – concerned about its future. Under a Labour government its budget would almost certainly have been reduced. Under the new coalition Government its future is uncertain at best, with many fearing it could be cut altogether. Chancellor George Osborne is expected to make an announcement concerning the FSA in the coming weeks. In the meantime, it has set about proving its worth.

The regulator has recently launched a string of insider trading cases. Lawyers, it warns, are among those most susceptible to sensitive information that could be used for monetary gain and are subsequently on its target list.

Back in the summer of 2006, when the FSA went knocking on Andrew Rimmington’s door, he was still a corporate partner at the London office of Dorsey & Whitney. The call, he thought, was just routine. The FSA was looking into a transaction where he had made some cash. Little did Rimmington know that during the course of the investigation he would be sacked by the firm and stand trial for insider trading.

The charges

“I feel like I’ve been in a John Grisham novel,” says Rimmington, describing the past year of his life.

Rimmington was charged with insider trading on 30 April 2009 with former McDermott Will & Emery partner Michael McFall and Andrew King, the financial director of Manchester-based biotech company NeuTec Pharma. King and McFall were also charged with disclosing non-public information.

It was alleged that in May 2006 King contacted McFall and told him about the proposed reverse takeover of NeuTec by Novartis. The FSA contended that McFall had passed on detailed information to Rimmington, who then purchased shares, making £40,000 when the company was sold.

In 2006 Rimmington, then only 29, was named as Dorsey’s worldwide partner of the year. He was popular within the firm and, as head of recruitment, was an instrumental force in the London office of the US firm, having worked there since 1998 (it launched in London in October 1986). McFall joined McDermott in 2004 following a six-year stint at Dorsey, but left in January 2009 to launch a private equity advisory service.

First contact

The FSA first made contact with the pair shortly after the shareholding transaction.

“When I was first contacted by the FSA, I went to speak to them voluntarily to be helpful,” Rimmington says, recalling the first meeting with the FSA. “As far as I was concerned it was a normal inquiry. After the initial discussions there was no contact from them for almost a year.”

The lawyer says he offered the regulator his laptop and access to his papers to show support for his assertion that he was not guilty, but he was told it was unnecessary. The firm was not told of the share deal because Rimmington believed the client was not conflicted and he was not obliged to do so under the partnership terms.

Dorsey learnt of the formal investigation from the FSA and immediately began its own inquiry.

“I just carried on working,” Rimmington says matter-of-factly. “I didn’t think there was anything in it. The inquiry was ad hoc and they [the FSA] never gave any indication it was anything more than a standard investigation into all trading that had taken place prior to the takeover.

“It was very much about answering questions, but the FSA appeared to be going over the same ground over and over again.”

“I was convinced that the FSA’s decision to take action was as a result of pressure from the media and politicians to be seen to be taking aggressive action, striking at the heart of the City,” he says of being charged three years later. “They saw this as an easy strike at the heart of the legal community.”

Rimmington is not alone in this belief. “Before the recession the FSA was a cautious regulator, very hands-off,” says one senior silk. “It’s been under massive pressure to toughen up. It’s choosing cases that send messages out – in this instance the message was for lawyers.”

“The regulator’s been taking market abuse much more seriously in the past few years,” adds Beachcroft partner Mathew Rutter.

Firm position

Clearly concerned about the impact of the FSA inquiry, Dorsey decided that it would share the outcome of its investigation with the regulator, unbeknown to Rimmington.

So worried was the lawyer about the possible impact the investigation would have on his employers that he flew to Dorsey’s headquarters in Minneapolis to meet managing partner Marianne Short to apologise in advance for any negative publicity.

“Marianne Short was extremely sympathetic. She said she’d discuss the matter further internally, but that in her role as managing partner her primary focus must be to protect the best interests of the firm, which I could understand,” Rimmington relates.

When formal charges were brought against the trio in April 2009 Rimmington continued in his day job. It was only when Bloomberg made the story public on 20 May that the firm made its move and sacked him.

“The reason I was so shocked by the sudden decision to ask me to step down as a partner immediately following the press reporting about the case was because, between 2006 and 2009, I continued my role as an equity partner within the London office,” he says.

The decision to dismiss him, claims Rimmington, was made in the US without consultation with the London office. He was called at home at 9pm the day after the news broke and told not to return the next day. This came three weeks after he was charged. (Dorsey’s London office, however, says it was consulted on the decision.)

The lawyer maintains a good relationship with the London office and, when one client offered him work as a legal consultant after he was sacked, he attempted to instruct a Dorsey partner. The firm rejected the work because of the potential for negative publicity, but Rimmington empathises with the firm and says he would work with Dorsey again.

“We’re very pleased for Andrew and his family with the result in this matter,” says Dorsey London co-­managing partner Tim Moloney.

Reserving one’s ire

Rimmington has fewer kind words for the FSA, however, and says he was surprised it ever launched such
a case.

Originally Rimmington had been advised by Barlow Lyde & Gilbert (BLG) partner Ian Mason. Until 2006 Mason headed the wholesale group in the FSA’s enforcement division and specialised in such cases.

“He was astonished that the case was pursued,” Rimmington says. Mason instructed Outer Temple Chambers’ Richard Lissack QC to lead Oliver Assersohn.

When the accused were committed to trial at the Crown Court, BLG refused to take legal aid rates and Rimmington was recommended to instruct Saunders Law Partnership partner Stephen Gilchrist. Lissack and Assersohn continued as counsel.

0 per cent proof

A year after he was sacked ­Rimmington stood trial alongside McFall and King. According to sources close to the case the FSA was heavily reliant on circumstantial ­evidence and the onus was on it to show that the three had discussed, in detail, how to make money from NeuTec’s shareholding.

“Yes they made money, but they always denied that it was because of inside information,” Rimmington’s lawyer Gilchrist insists, explaining that in order to be convicted the regulator had to show that “whatever inside information was supplied, it was not available in any media in any other part of the world”.

“This case,” he says, going a step further, “was based on coincidence, surmise and speculation.”

Not guilty

The untimely and tragic death of Rimmington’s brother midway through the trial meant the judge ordered the jury to dismiss him. Ordinarily that would mean a case against him is maintained, if not ­pursued. But because McFall was acquitted and the FSA’s case was reliant upon his conviction to secure a guilty verdict for Rimmington, Judge Peter Testar recorded a not guilty verdict.

Gilchrist puts the blame at the door of the FSA. “You’re dealing with an organisation that has the power to regulate and prosecute people who are not members of the FSA club,” he says. “My view is that, before you start flexing your muscles, you should know where the case is going
and know that you have enough evidence.”

“There were far too many situations where the FSA person didn’t know the answer to an important question and had to call someone else, [and] that person is away so someone else is dealing with it,” adds a barrister close to the case. “It all backfired on them.”

But the ’not guilty’ verdict in this case is not seen as a huge setback for the FSA by many regulatory lawyers. Jason Mansell, a barrister at 7 ­Bedford Row, is one.
“For me it’s a sign that the FSA’s becoming more confident as a ­prosecutor and is willing to take risks,” argues Mansell. “Obviously any acquittal is a setback, but it’s not catastrophic.”

Nevertheless, there are lessons to be learnt.

“There’s always a danger that the FSA, like other agencies, tends to get overconfident,” says Beachcroft ­partner Mathew Rutter. “The ­verdict came at a useful time because it shows that we’re not all infallible. It’s good to lose occasionally.

“What’s surprising is how successful the FSA has been until now; there are plenty more cases in the pipeline.”

The guilty few

In March 2009 the regulator secured a conviction against the former general counsel of technology company TTP Communications Christopher McQuoid. McQuoid was convicted of telling his father-in-law James Melbourne about the sale of the company and making £49,000 through insider dealing.

The regulator took another scalp in March this year with the conviction of Malcolm Calvert, a former head of market marking at stockbroker Cazenove.

“What’s important is that there was a feeling in the market that it was impossible to get convictions for insider trading,” says Cole of the conviction. “We’ve proved that isn’t right.”

Cole’s message is being heard across the City, and regulatory lawyers with a global reach are in demand.

One barrister says that, while the regulator’s stance may appear heavy-handed, it does create work for lawyers.

“Another case arrived on my desk just last week – regulation’s where the work is at the moment,” he says. “The FSA’s not interested, it wants to go to court and set big precedents, just like the Serious Fraud Office and Office of Fair Trading are trying to do.”

None of this helps Rimmington, who was supported by some of his lawyer friends, who gathered around him and raised a fighting fund for his defence.
Now he is hoping that, following a period of rest and relaxation, he will return to work – possibly to Dorsey if the firm calls; otherwise there are options in the pipeline. McFall, meanwhile, has quit the profession.

This is a story of three people who were victims of circumstance and pushed into a corner by a regulator wanting to make its mark. It is also the story of a London-based lawyer whose needs were misunderstood by his US counterparts.

The case may be over and the trio may have been acquitted, but theirs is a story that will take a long time to forget.