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Scotland Yard Needs To Pursue Gordon Gekko

by Pratap ChatterjeeCorpWatch Blog
March 2nd, 2012

Michael Douglas video for the FBI

The Federal Bureau of Investigation (FBI) has just released a public service advertisement featuring Michael Douglas, the Hollywood star who plays the fictional character Gordon Gekko in the “Wall Street” films to target insider trading in the financial industries.

“In the movie ‘Wall Street’ I played Gordon Gekko, who cheated to profit while innocent investors lost their savings. The movie was fiction but the problem is real,” says Douglas in the ad. “Our economy is increasingly dependent on the success and integrity of the financial markets. If a deal looks too good to be true, it probably is.”

Increasingly, however, it seems that the UK needs a similar campaign for the City of London, which has become the center for the mantra “Greed is Good.”

An article from this weekend’s New York Times magazine titled “London Is Eating New York’s Lunch” explains that over 300,000 people work in the world of high finance in and around the square mile that makes up the City of London compared to fewer than 200,000 on Wall Street. London is the world’s biggest trader of currencies although New York remains the preferred location for hedge funds to set up shop.

Why is London so attractive to wealthy traders? One of the reasons is the relative lack of enforcement against criminal activity. New York authorities have prosecuted 66 people for insider trading, with 57 convictions or guilty pleas since 2009.

By contrast, the Financial Services Authority (FSA) in the UK has secured very few criminal convictions: the first major one being in 2009 when Christopher McQuoid, former general counsel at TTP Communications, went to jail for telling his father-in-law to buy shares when he heard that Motorola was planning to take over the company.

The UK has relied on fines to push the envelope a little against financial services abuse. Philippe Jabre, a former managing director of hedge fund manager GLG Partners, was told to pay £750,000 in August 2006 for illegally dealing in securities of Sumitomo Mitsui Financial Group. JP Morgan was fined £33.3million in June 2010 by the FSA for failing to segregate client money in overnight accounts. Last month, David Einhorn and his fund Greenlight Capital, were fined £7.2m for insider trading about a planned 2009 equity fundraising by Punch Taverns.

“It has been far slower going in London, where many hedge funds operate, let alone in Geneva,” writes John Gapper of the Financial Times. “The small minority that breaks the rules has a much lower chance of either being caught or, when caught, jailed.”

One of the reasons is that the FBI has been more effective is its ability to monitor mobile phone calls and conference calls. The UK, however, does not allow phone-tapping to convict traders.

Although the UK convictions may seem paltry – they are still a sea change from the past, as a result of a crackdown initiated by Margaret Cole, the interim FSA director. She was recently placed on leave and is to be replaced by Martin Wheatley, who will head a new body called the Consumer Protection and Markets Authority.

Wheatley comes to the job from Hong Kong where he secured 171 convictions in the past three years as head of the Hong Kong Securities and Futures Commission (SFC), representing over two thirds of the cases in the last 23 years. Will he finally be able to crack down on the Gordon Geckos in the City of London?