A convicted insider trader, described by prosecutors as “the face of Moore Capital” in London, has co-operated with a US criminal investigation that will involve a “particularly important individual” appearing before US courts within a matter of days, a London court has heard.
Julian Rifat, who was sentenced to 19 months in prison on Thursday after pleading guilty to a £285,000 insider-trading scam, co-operated with a Department of Justice probe last year and signed an agreement with the US authorities as part of the investigation, Southwark Crown Court heard during his sentencing. No other details of the DoJ’s probe were revealed.
The DoJ declined to comment.
Rifat, 45, was a senior execution trader at Moore Capital, a US hedge fund, and headed risk management. He earned more than £700,000 a year, and has been paid about £1.4m in severance pay since his arrest almost exactly five years ago as part of the biggest ever insider-trading investigation.
“He was the face of Moore Capital,” Mark Ellison QC for the UK Financial Conduct Authority told the court. “He was the person in London who senior bankers would contact on wall-crossing issues.”
Wall-crossing is when participants share information ahead of a deal.
Rifat pleaded guilty in November over a scheme that paid for a £15,000 luxury holiday to Oman and a new Range Rover car. He passed information on forthcoming deals — gleaned through his work at Moore — to his friend Graeme Shelley, who used to be a broker at Novum Securities.
Shelley would then trade in the companies’ shares using spread bets and would split any profit with Rifat.
“I must have regard as to whether you behaved deliberately and dishonestly; unhappily you did both of these things,” said Judge Alistair McCreath during Rifat’s sentencing.
Shelley previously received a two-year suspended sentence after doing a deal with the FCA and also pleading guilty.
Rifat is the second person to go to jail as part of the conspiracy, at the centre of which stood Shelley.
Paul Milsom, a former equities trader at the investment arm of Legal & General also passed information to Shelley. He pleaded guilty to insider trading and received a two-year prison sentence in 2013. Insider trading carries a maximum seven-year prison sentence.
Prison is a world removed from Rifat’s former life: his career included stints at Dresdner Kleinwort and Brevan Howard before he landed at Moore, which was founded by the billionaire Louis Bacon. In 2009, he was tipped as one of Morgan Stanley’s institutional investors to watch.
That all changed on March 23 2010, when officers arrested Rifat, a father of three, on his 41st birthday at his Oxfordshire home.
“The measure of how much he was earning is a measure of how much he has thrown away by this dishonest conduct,” his barrister, Rex Tedd QC, said in mitigating arguments.
Amount Graeme Shelley made from trades which he then split with Paul Milsom
Rifat will also have to pay a fine of £100,000, as well as a contribution of £159,400 towards the cost of prosecuting his case. His sentence was reduced because of family circumstances.
The dawn raid was part of a wider wave of arrests that involved more than 100 officers, and targeted suspects at institutions including Deutsche Bank. The five-year investigation, known as Operation Tabernula — Latin for little pub — is the largest the regulator has undertaken to date.
While Shelley and Rifat’s guilty pleas are part of one offshoot of Tabernula, six other defendants face trial in January over a separate alleged conspiracy. They deny the charges.
It was during the regulator’s probe into Shelley and Rifat that the link between Shelley and Milsom was found. Milsom would tip off Shelley when L&G was about to trade in deals that were big enough to move the market. Shelley would buy or sell ahead of those trades. He made £560,000 that he then split with Milsom.
Additional reporting by Gina Chon in Washington
FCA’s Operation Tabernula has long paper trail
The Financial Conduct Authority has suffered criticism for what is said to be a sclerotic approach to its investigation. It counters, however, that just on the trio’s part of Tabernula, more than 110,000 lines of trading data had to be scrutinised and more than 10m emails and electronic chats parsed. Painstaking chronologies compiled by the regulator for one day’s activity — trades, correlated to phone calls and instant messages — run past 70 pages of A4, writes Caroline Binham.
According to Richard Littlechild, an FCA forensic investigator involved in the probe, similar analyses were brought to bear on the recent investigation into the alleged rigging of foreign-exchange benchmarks, which led to five banks paying £1.1bn to the FCA as part of an unprecedented global settlement.
Lawyers say, however, that the FCA has perhaps become too cautious. No other prosecutions have been brought since Tabernula that involve complex alleged City insider rings.
“They are overly concerned that their cases win,” said Steven Francis, a former regulator now at law firm Baker & McKenzie. “Too much effort is perhaps put into perfecting the cases, and I think that’s what takes the time.”
Those cases have also evolved in sophistication, from prosecuting interns and pensioners to City insiders such as Rifat. The latter clearly gains the FCA more kudos, said Tim Aron at law firm Arnold & Porter.
“The City tends to judge the FCA’s success in two ways: the amount of disgorgement and the seniority of the individuals concerned.”
Ken O’Donnell, Tabernula’s case manager at the FCA, is firm: “There are no short-cuts,” he said in an interview before Thursday’s sentencing. “This has taken time and patience, and a lot of energy by us and by senior management. We have now got a respectable track record, and we’re doing a decent job from humble beginnings.”
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