The ugly truths be­hind the U.K.’s big­gest in­sider-trad­ing case

Bloomberg Businessweek (Asia) - - CONTENTS - By Suzi Ring and Liam Vaughan

Iraj Parvizi, aka Fatty or the Mad Punter, a Bent­ley-driv­ing, race­horse-own­ing Ira­nian, whose life had been one end­lessly es­ca­lat­ing wa­ger, walked to the wit­ness box with un­char­ac­ter­is­tic anx­i­ety. His hands shook, and he was dressed care­lessly, in jeans, sneak­ers, and an un­tucked shirt. Parvizi was on trial in Lon­don for par­tic­i­pat­ing in what pros­e­cu­tors de­scribed as the big­gest in­sider-trad­ing ring in U.K. his­tory, and four co-de­fen­dants, the other al­leged con­spir­a­tors, looked on from the dock. It was Week 13 of the pro­ceed­ings, a Wed­nes­day in April, and Parvizi faced years in prison if con­victed. Once he’d taken his place, his bar­ris­ter re­minded him: Just be your­self. The Mad Punter smiled and took con­trol of the court­room.

Rest­ing one foot on a nearby chair, Parvizi de­scribed his an­ar­chic life in the mar­kets. “There are no rules,” he said. “Any­one can start a ru­mor. It’s just gung-ho, go for it, do what you want.” The ju­rors, who’d strug­gled to stay awake dur­ing dis­cus­sions of con­tracts-for-dif­fer­ence and mar­gin calls, were rapt, as if Parvizi were a dif­fer­ent species. He’d gone from mak­ing doner ke­babs to trans­act­ing with roy­als, he said, de­vel­op­ing a net­work that never stopped gos­sip­ing about stocks. Three days into Parvizi’s tes­ti­mony, pros­e­cu­tors tried to show that his gains were the re­sult of an il­le­gal ad­van­tage. How had he traded up a for­tune when or­di­nary in­vestors strug­gle to get sin­gle-digit re­turns?

“You’re mak­ing out like I’m the only liar in the stock mar­ket,” Parvizi said. He de­scribed a world where ru­mors cir­cu­late on phone screens, fab­ri­cated sto­ries are fed to a gullible press, and re­turns cor­re­late with whom you know. The only dif­fer­ence be­tween stocks and any other form of gam­bling, he said, as if talk­ing to a room­ful of chil­dren, is that the stakes are higher. His co-de­fen­dants nod­ded in agree­ment.

“When I was ar­rested,” Parvizi said at an­other point, “I was think­ing, ‘Why isn’t ev­ery trader in the mar­ket be­ing ar­rested?’ Where does in­sider trad­ing start, where does it stop?”

In a gallery at the back of the cham­ber, it was a small team of in­ves­ti­ga­tors’ turn to be ner­vous. Some of them had de­voted eight years to the case. Op­er­a­tion Taber­nula, as it was known, was a land­mark for the Fi­nan­cial Con­duct Au­thor­ity, a re­but­tal to crit­ics who said the reg­u­la­tor was too soft. The FCA had com­piled 46 binders of ev­i­dence and 320 hours of sur­veil­lance au­dio. But this wasn’t the U.S., where the govern­ment has a well-re­hearsed rou­tine of flip­ping tar­gets and lock­ing in plea deals. The men in the Taber­nula dock liked their odds with a jury. In the same court­house three months ear­lier, the FCA’s sis­ter agency, the Se­ri­ous Fraud Of­fice, had seen a dif­fer­ent tro­phy case col­lapse. The com­pe­tence of Bri­tish fi­nan­cial reg­u­la­tion was on trial, too.

Through­out the pro­ceed­ings, the five de­fen­dants sat in a neat di­a­gram of their al­leged scam. In the front cor­ner sat Martyn Dodg­son, 44, a red-haired banker, dressed in chi­nos and boat shoes. To his left was An­drew “Grant” Har­ri­son, 46, an olive­skinned New Zealan­der with slicked-back hair. Both had worked at in­vest­ment banks, in po­si­tions that let them know in ad­vance when com­pa­nies were go­ing to make deals.

In the row be­hind them sat a sec­ond pair—these two, ma­jor­league day traders. One was Parvizi. The other was Ben­jamin An­der­son, a sep­tu­a­ge­nar­ian with a grand­fa­therly smile. Raised in Glas­gow, the son of a gro­cer, he was now worth £100 mil­lion (about $142 mil­lion). These two, pros­e­cu­tors said, had taken Dodg­son’s and Har­ri­son’s in­side in­for­ma­tion and traded on it.

Fi­nally, sit­ting apart from the oth­ers, was An­drew Hind, 56, a weasel-thin odd­ball with a de­gree in de­ci­sion the­ory, a back­ground in ac­count­ing, and a pair of read­ing glasses on top of his head. The govern­ment said Hind was the con­nec­tion be­tween the guys with the in­for­ma­tion and the guys with the money—a linch­pin who ran op­er­a­tional se­cu­rity and dis­trib­uted the prof­its.

When the trial be­gan, in Jan­uary, pros­e­cu­tors said the group had net­ted at least $10 mil­lion through in­sider trad­ing. What made the case fas­ci­nat­ing—what had the en­tire Lon­don fi­nan­cial scene watch­ing and wait­ing for the prece­dent it might set—was that the de­fen­dants’ ver­sion of events wasn’t so dif­fer­ent from that

Parvizi once bet £5,000 on where a fly would land—and won

of the pros­e­cu­tion. Parvizi and the oth­ers ac­knowl­edged join­ing up to trade. They ac­knowl­edged dis­guis­ing their ac­tiv­i­ties with en­crypted de­vices and burner phones. But, they main­tained, they’d never know­ingly traded on in­for­ma­tion that was, legally speak­ing, “in­sider.” The men said their in­vest­ments, even those that were in­cred­i­bly well-timed, stayed on the le­gal side of the line be­tween priv­i­leged in­for­ma­tion and well-in­formed ru­mor.

The trial ran for four months, and at times Court­room 3 be­came a cir­cus. An­der­son suf­fered a heart scare af­ter two days on the stand, re­peat­edly de­lay­ing the pro­ceed­ings. A re­al­ity-TV star sat in the au­di­ence. Har­ri­son, mak­ing the most of the judge’s di­rec­tion that the men could come and go as they pleased, barely showed up. Parvizi main­tained his cool, even when his char­ac­ter was be­ing sav­aged. Dur­ing cross-ex­am­i­na­tion, the lead pros­e­cu­tor ob­served that ly­ing ap­peared to come eas­ily to him. Mat­terof-factly, Parvizi replied, “Of course.”

Dodg­son breezed through child­hood in Lan­caster, a pretty river town in the north of Eng­land, with a cricket bat un­der one arm. In 1993 he left home for Lon­don, and af­ter a few years charmed the City’s elite in­vest­ment banks, get­ting hired f i rst at J. P. Mor­gan Cazen­ove and then at UBS as a cor­po­rate bro­ker—a kind of pro­fes­sional glad-han­der who smooths re­la­tions be­tween com­pa­nies and share­hold­ers. Dodg­son spe­cial­ized in fi­nan­cial firms. When­ever one of UBS’s clients en­gaged in takeover talks or con­sid­ered rais­ing equity, Dodg­son dis­creetly gauged how the move would go down with in­vestors.

Dodg­son had to know fi­nance and eco­nomics, but re­ally his job was about re­la­tion­ships. De­spite its mul­ti­tril­lion-dol­lar size, the Lon­don equity mar­ket was a cozy place. The same in­sti­tu­tional in­vestors dealt with all the big­gest firms, and Dodg­son knew ev­ery­body. Witty and gre­gar­i­ous, he started an an­nual pub quiz night for in­vestors and ex­ec­u­tives.

Then, in July 2001, at age 29, he went to his brother’s stag party in Lon­don. Dodg­son’s brother worked at Top­shop, and among the at­ten­dees was Hind, the fash­ion re­tailer’s one­time fi­nan­cial di­rec­tor. Hind was 41 and some­what so­cially awk­ward, but he im­pressed Dodg­son with his in­tel­li­gence, con­nec­tions, and wealth. The men lived near each other and be­gan to meet for pints. The con­ver­sa­tion al­ways came back to the mar­kets, and some­time around 2003 they struck an al­liance. Hind had ac­cess to cap­i­tal, pros­e­cu­tors would later es­tab­lish, and his young friend had a head full of po­ten­tially mar­ket-mov­ing in­for­ma­tion. Hind would front the cash and ar­range the trades; Dodg­son would take half the gains or losses.

English law de­fines in­side in­for­ma­tion as that which isn’t gen­er­ally avail­able and would be likely to have a sig­nif­i­cant ef­fect on the price of a se­cu­rity if made pub­lic. For a crime to be com­mit­ted, a person leak­ing in­side in­for­ma­tion, or a person trad­ing on it, must be aware that the ma­te­rial is priv­i­leged. To stay well clear of the line, banks have fur­ther rules about what an em­ployee can and can­not do. Dodg­son kept his ar­range­ment with Hind quiet, know­ing it would never pass muster with his em­ployer.

Their trades made money, and Dodg­son started to keep a spread­sheet of ev­ery­thing he was owed. In one col­umn, he tracked progress to­ward a dream fig­ure, £5 mil­lion, enough to re­tire from fi­nance and maybe en­ter academia. Rather than trans­fer the win­nings be­tween bank ac­counts, which might have set off alarms, Hind of­ten paid his part­ner in kind: £210,000 in home ren­o­va­tions and Bri­tish Air­ways flights. Hind also gave Dodg­son cash— on one oc­ca­sion, he handed him £50,000 over a curry. Both men ploughed their prof­its back into small busi­nesses. Hind dab­bled in black vodka, high-end watches, and real es­tate. In 2006, af­ter an in­tro­duc­tion from a mu­tual as­so­ci­ate, he flew to Dubai to meet a po­ten­tial in­vestor.

In 1977, Parvizi, the son of an Ira­nian diplo­mat, was sent to Eng­land for an ed­u­ca­tion. When the revo­lu­tion struck in 1979, his fam­ily lost ev­ery­thing. Parvizi didn’t fin­ish school and spent his early adult­hood drift­ing be­tween jobs—dou­ble-glaz­ing sales­man, pizza de­liv­ery boy, ke­bab-shop worker. At 22 or 23, liv­ing in a sea­side town in Kent, he went to a lo­cal poker game and saw a new face: a Lon­don gen­tle­man named Ge­orge Maxwell-Brown.

The new guy cleaned the Kent lads out. As the oth­ers cursed their luck, call­ing the man a hustler, Parvizi sim­ply

shook the stranger’s hand and said, “Thanks for the les­son.” Maxwell-Brown, im­pressed by his at­ti­tude, gave Parvizi his card, and soon af­ter a job at his Lon­don busi­ness, which pro­vided short-term loans to wealthy for­eign­ers look­ing to buy as­sets in the U.K. Parvizi be­gan min­gling with Nige­rian chiefs and Saudi princes and soon branched out on his own. He drove Bent­leys and Fer­raris; opened a com­bi­na­tion spa-bou­tique-restau­rant; and in­vested widely, in di­a­monds, prop­erty, and horses. In the 1990s he started bet­ting on eq­ui­ties.

In 2000, at a stock­bro­ker char­ity din­ner, Parvizi met An­der­son, then 56 and a leg­end in day-trader cir­cles. Math­e­mat­i­cally gifted, he’d cre­ated an eight-fig­ure for­tune out of noth­ing. A self-de­scribed par­si­mo­nious Scot, he shunned the trap­pings of wealth and rein­vested his prof­its in ar­eas from biotech­nol­ogy to oil. Like Dodg­son and Hind, Parvizi and An­der­son made a pact to trade to­gether, de­spite their ob­vi­ous dif­fer­ences. Six weeks af­ter Parvizi bought An­der­son a Bent­ley, a gift af­ter a par­tic­u­larly big win, An­der­son gave it back, say­ing it was “too juicy”—it guz­zled too much fuel.

With no for­mal train­ing, Parvizi had lit­tle un­der­stand­ing of the minu­tiae of fi­nance. He traded es­sen­tially with­out lim­its, gam­bling mil­lions at 90 per­cent lever­age; he’d later tell the court that he spread false ru­mors to move stocks. Parvizi moved to Dubai in 2003. In 2006, when his earn­ings to­taled some £70 mil­lion, he took the meet­ing in Dubai with Hind, in an up­mar­ket ho­tel lobby. Parvizi agreed to lend him £1 mil­lion for a new prop­erty ven­ture. Other types of deals soon fol­lowed.

Af­ter that 2006 meet­ing, Hind and Dodg­son, the fixer and the banker, now had ac­cess to the vast trad­ing power of Parvizi and, through him, An­der­son. At trial a decade later, pros­e­cu­tors al­leged that Dodg­son would sniff out op­por­tu­ni­ties and pass them on to Hind, who handed them to the mon­ey­men, Parvizi and An­der­son, to ex­e­cute the trades. Parvizi and An­der­son ac­knowl­edged mak­ing the trans­ac­tions but said that they dealt with only Hind and never knew if the in­for­ma­tion came from an in­sider. Dodg­son, from his end of the op­er­a­tion, said he never knew who placed the bets.

Hind tried to keep the ar­range­ment se­cret. He bought un­trace­able pay-as-you-go phones and made pay­ments in cash and via Swiss bank ac­counts. In painstak­ing but opaque records, he re­ferred to each mem­ber of the group by a nick­name: The paunchy Parvizi was “Fatty,” and Dodg­son was “Fruit.” (Pri­vately, Parvizi called Hind “Nob,” Bri­tish slang for the male mem­ber. An­der­son, who was more po­lite, soft­ened that to “Nobu.”) Later, Hind bought six “iron keys,” en­crypted USB sticks that leave no trace af­ter be­ing plugged in. On an iPod he kept a memo ti­tled “Dol­lar Op­er­a­tions Risks” that listed the group’s po­ten­tial ex­po­sures, such as “fruit de­tec­tion”—an ap­par­ent ref­er­ence to the pos­si­bil­ity of Dodg­son get­ting caught. Out­side of busi­ness, Hind was equally fas­tid­i­ous. He was fa­nat­i­cal about food, writ­ing de­tailed notes on quinoa and the dan­gers of olive oil. When the fi­nan­cial cri­sis hit, he stocked up on canned goods and built an ar­mory of spears, hockey sticks, and base­ball bats.

The group’s first ma­jor score, ac­cord­ing to the pros­e­cu­tion, came in Oc­to­ber 2007. Dodg­son had moved to Lehman Brothers, and his col­leagues were ad­vis­ing Carls­berg on its bid with Heineken to ac­quire the U.K. brewer Scot­tish & New­cas­tle. On Oct. 15, Dodg­son’s co-work­ers were ready­ing a pre­sen­ta­tion on the deal, code-named Project Rain­bow. Dodg­son called or texted Hind six times that day. Records first show Hind look­ing up Scot­tish & New­cas­tle’s ticker, then Parvizi. The next morn­ing, Parvizi and An­der­son, us­ing eight dif­fer­ent bro­ker­age ac­counts, started as­sem­bling a bet worth more than £30 mil­lion.

Ru­mors of a takeover hit the wider mar­ket on Oct. 17, and at 11:47 a.m. Scot­tish & New­cas­tle con­firmed them. One minute later, Parvizi and An­der­son started clos­ing out their po­si­tions. The shares jumped 18 per­cent, and they made a £4.4 mil­lion profit. Spread­sheets later found in Hind’s home showed he re­ceived £562,000, of which half was re­served for Dodg­son. Parvizi and An­der­son would later say in court that Scot­tish & New­cas­tle had been hyped as a takeover tar­get in the press for months, and their po­si­tion at the mo­ment the ru­mors were con­firmed was a co­in­ci­dence.

It was a sen­sa­tional start, but there were only so many bigticket merg­ers-and-ac­qui­si­tions deals to trade on. Ex­pand­ing into small- and mid-cap com­pa­nies would of­fer more op­por­tu­ni­ties. A few weeks af­ter the beer deal, Dodg­son set up a lunch with Har­ri­son, a tall, suave for­mer col­league from UBS who now worked at the stock­bro­ker Pan­mure Gor­don. The New Zealan­der agreed to join the group. Hind nick­named him “Lit­tle.” At trial, Har­ri­son would say he was re­cruited by Hind only for his gen­eral mar­ket knowl­edge and not for spe­cific in­tel­li­gence about his clients.

One of Har­ri­son’s clients was NCipher, an in­ter­net se­cu­rity com­pany. A few months af­ter the lunch, shares in the com­pany had fallen. Har­ri­son was one of a lim­ited num­ber of peo­ple who knew the com­pany had re­ceived two takeover of­fers, and pros­e­cu­tors would later al­lege he passed that in­for­ma­tion to Hind. On May 8, 2008, Parvizi and An­der­son bought shares worth £168,000. On July 8, Har­ri­son e-mailed a col­league to say a deal had been struck; Parvizi and An­der­son bought an ad­di­tional £669,000 the next day and more the day af­ter that. On July 10, when NCipher no­ti­fied the mar­ket it was in late-stage takeover talks, the share price jumped 73 per­cent. Parvizi and An­der­son made a £724,000 profit. Hind’s records show Har­ri­son re­ceived £41,000. An elec­tronic Post-it note from the time, later re­trieved on Har­ri­son’s PC, had four char­ac­ters: “n+41.”

Pros­e­cu­tors said that from 2006 to 2010, the group made in­vest­ments in 59 com­pa­nies, at least six of which they al­leged crossed the line into in­sider trad­ing. But that was a tiny frac­tion of the scores of trans­ac­tions Parvizi and An­der­son made each week. The pair had traded pro­lif­i­cally for years, us­ing dozens of bro­ker­age ac­counts. Later, they ac­cused pros­e­cu­tors of cherry-pick­ing the trades where they’d prof­ited and ig­nor­ing the many where they’d lost out.

In the mean­time, Parvizi kept liv­ing as only he could. He owned thor­ough­breds, in­clud­ing a Breed­ers’ Cup cham­pion, and played poker with Premier League foot­ballers in the cor­doned-off Red Room at Les Am­bas­sadeurs, the casino from Dr. No. Parvizi would bet on any­thing. He once wa­gered £5,000 on which wall a fly would land on—and won.

In the spring of 2005, Lon­don’s mon­ey­men had lit­tle cause to fear their over­seer, the Fi­nan­cial Ser­vices Au­thor­ity. Funded not by tax­pay­ers but by the in­dus­try it was meant to guard, the FSA had a man­date to fos­ter mar­ket sta­bil­ity, pro­tect con­sumers, and re­duce fi­nan­cial crime. At the last, it was strug­gling. The FSA had just been forced to re­duce a fine on an in­sur­ance com­pany af­ter ad­mit­ting a string of er­rors, and a for­mal review of its en­force­ment abil­i­ties was un­der way.

The agency’s head­quar­ters were in a slightly dated struc­ture in Ca­nary Wharf, lit­er­ally in the shad­ows of fi­nan­cial-com­pany sky­scrapers. One day that spring, in a sev­enth-floor

board­room, three ex­ec­u­tives were in­ter­view­ing can­di­dates for the job of head of en­force­ment. They asked one of the fi­nal­ists, Mar­garet Cole, how she’d fix the FSA. Cole had an an­swer ready: “In­sider deal­ing.”

It was a sur­pris­ingly rad­i­cal sug­ges­tion. The FSA had never pros­e­cuted any­one for in­sider trad­ing. The agency saw it­self more as a fa­cil­i­ta­tor than as a watch­dog and took the view that dodgy be­hav­ior could usu­ally be han­dled with a stern phone call to a bank’s chair­man. But Cole had come from the pri­vate sec­tor, where suc­cess was mea­sured in re­sults. Bird­like, with sandy hair and in­tel­li­gent eyes, she was a lit­i­ga­tor who’d made her name help­ing pen­sion­ers swin­dled by the me­dia ty­coon Robert Maxwell, be­fore he fell off his yacht and drowned.

Cole got the job. A few weeks later, she at­tended an in­ter­nal brief­ing on a sus­pected in­sider-trad­ing ring. One of the con­fer­ence room walls had a vast di­a­gram link­ing in­di­vid­u­als and com­pa­nies around the world. Maybe things aren’t so dire af­ter all, Cole thought. She asked, “When will we get to a pros­e­cu­tion?” A staffer replied, “About four years.” Cole re­turned to the FSA board and told them they didn’t have a sin­gle worth­while crim­i­nal in­sid­er­trad­ing case. They’d have to start from scratch.

Over the next two years, Cole elim­i­nated about a third of the agency’s en­force­ment staff and set up a mixed team of lawyers, IT spe­cial­ists, foren­sic ac­coun­tants, and in­ves­ti­ga­tors, draw­ing from both in­side and out­side the agency. She also in­creased the FSA’s pow­ers. She suc­cess­fully lob­bied the Bri­tish govern­ment to ex­tend the law to al­low the FSA to of­fer plea deals to co­op­er­a­tive sus­pects, as U.S. reg­u­la­tors do. And she per­suaded the Se­ri­ous Or­gan­ised Crime Agency (SOCA), a law en­force­ment unit fo­cused on drugs and gangs, to lend its sur­veil­lance pow­ers.

Cole also in­vested mil­lions in tech­nol­ogy to de­tect un­usual mar­ket ac­tiv­ity. The FSA be­gan to bet­ter scru­ti­nize the “sus­pi­cious trans­ac­tion re­ports” (STRs) that bro­ker­ages file on cus­tomers who change their be­hav­ior or go on im­prob­a­ble streaks. These ef­forts started to pro­duce pros­e­cu­tions, al­beit mi­nor ones: a so­lic­i­tor and his fa­ther-in-law; a den­tist and his son; a group of op­por­tunists who worked in the print­ing rooms of in­vest­ment banks. But Cole wanted to go af­ter or­ga­nized, ha­bit­ual of­fend­ers with links to the big­gest firms.

On Oct. 17, 2007, a spread-bet­ting firm filed an STR on traders who’d made a killing on the Scot­tish & New­cas­tle deal. Cole’s team rec­og­nized two names that had cropped up on such lists be­fore: An­der­son and Parvizi. The in­ves­ti­ga­tors built pro­files of the pair. For years, they found, Parvizi and An­der­son had beaten the mar­ket with in­cred­i­ble reg­u­lar­ity. In the past, the FSA would have done lit­tle. Now it asked SOCA’s plain­clothes of­fi­cers to tail the men.

An­der­son kept an of­fice on the ground floor of a gray stone build­ing in Bel­gravia, a gracious neigh­bor­hood of Ge­or­gian houses and pri­vate gar­den squares. In Au­gust 2008 the po­lice broke in and in­stalled a bug be­hind the re­frig­er­a­tor. Two months later, on a mild morn­ing amid the fi­nan­cial cri­sis, Parvizi came over to talk to the man he af­fec­tion­ately called “Un­cle.”

The two men dis­cussed a debt Hind had run up, and af­ter a time Parvizi walked out of the of­fice and into a wait­ing sil­ver BMW 4x4. Hind was sit­ting in the driver’s seat and pulled into the Lon­don traf­fic. A po­lice pho­tog­ra­pher cap­tured the mo­ment from across the street. Less than an hour later, Parvizi was back in­side the of­fice. Hind had agreed to pay back the money he owed, he as­sured An­der­son. And that wasn’t all.

“Deutsche Bank,” Parvizi said. “He’s work­ing at Deutsche Bank.” With­out us­ing Dodg­son’s name, Hind had told Parvizi that Dodg­son had again changed em­ploy­ers, this time from Lehman to the Ger­man in­vest­ment bank. It was one of Lon­don’s big­gest M&A ad­vis­ers and a po­ten­tial foun­tain of lu­cra­tive in­tel­li­gence.

“He says he’s hun­gry,” Parvizi told An­der­son. Dodg­son had “done his bol­locks”—slang for go­ing nearly broke. “Be­cause you know he worked for Mor­gan?” Parvizi said. “He says he got f---ed on Lehman’s shares as well.”

Then Parvizi ut­tered a phrase that would haunt him at trial: “We’ll be the only ones get­ting it.” Pros­e­cu­tors said it was a ref­er­ence to get­ting non­pub­lic in­for­ma­tion ahead of the rest of the mar­ket. Parvizi said he was sim­ply re­lay­ing what Hind had told him and didn’t be­lieve it to be true. An­der­son said he didn’t give it any cre­dence be­cause Parvizi was, by his own ad­mis­sion, prone to ex­ag­ger­a­tion.

Six miles east, on the 27th floor of a build­ing in Ca­nary Wharf, Cole’s in­ves­ti­ga­tors lis­tened to the con­ver­sa­tion with a mix­ture of joy and dis­be­lief. Parvizi hadn’t said Dodg­son’s name, but by lay­ing out his work his­tory, he’d given the FSA enough to trace the in­side man. It was also the first time the FSA had heard about Hind. Cole’s big pros­e­cu­tion was fall­ing into place.

Dodg­son had been in bed for four hours when he woke to a bang­ing at his door. It was 5:40 a.m. on March 23, 2010, and he was se­verely hung over. Al­most 18 months had passed since Parvizi had un­wit­tingly outed him, and Cole’s team had spent the time metic­u­lously build­ing a case. Now, wait­ing on the doorstep of Dodg­son’s four-story Hamp­stead home were more than a dozen po­lice of­fi­cers and in­ves­ti­ga­tors.

They read Dodg­son his rights and piled into the prop­erty, ran­sack­ing draw­ers and grab­bing papers, lap­tops, and phones. In a kitchen cup­board, they found a dossier marked “con­fi­den­tial,” which out­lined News Corp.’s pro­posed takeover of BSkyB— doc­u­ments which, as a fi­nan­cial-sec­tor spe­cial­ist, he had no rea­son to pos­sess. Un­der a bed, in a small, locked red box, was the iron key Hind had bought him three years be­fore.

Shocked and nau­seous, Dodg­son was driven through the Lon­don streets to Hol­born po­lice sta­tion. At the same time, sim­i­lar op­er­a­tions were tak­ing place across the cap­i­tal, in Ox­ford­shire, and in Kent. Hind was seized at his home in Muswell Hill, along with three more iron keys stashed in a metal wall safe in his study. Parvizi was picked up at the Lon­don Clinic, a pri­vate hospi­tal in tony Maryle­bone. He’d con­tracted a throat in­fec­tion and was wired to an IV drip when the po­lice en­tered his room. An­der­son was ar­rested the next day, at Gatwick Air­port, as he re­turned from a hol­i­day in St. Lu­cia. The au­thor­i­ties weren’t aware of Har­ri­son yet, and his home wouldn’t be searched for an­other two years. When Dodg­son was in­ter­viewed that af­ter­noon, he de­nied ev­ery­thing; Hind, An­der­son, and Parvizi, ad­vised by their lawyers, clammed up.

Six­teen lo­ca­tions, in­clud­ing Deutsche Bank’s Lon­don head­quar­ters, were tar­geted by 200 po­lice of­fi­cers and FSA in­ves­ti­ga­tors. Sev­eral other in­di­vid­u­als were also ar­rested in re­la­tion to a sus­pected sec­ond, loosely con­nected trad­ing ring. Cole helped co­or­di­nate events from a com­mand cen­ter on a va­cant floor at FSA head­quar­ters. As the ev­i­dence started ar­riv­ing she al­lowed her­self a mo­ment of self-con­grat­u­la­tion. Dra­matic news­pa­per ac­counts ap­peared within hours. Cole was com­pared to Eliot Ness, the U.S. agent who brought down Al Capone. The head­line in the Evening Stan­dard: “Mar­garet Cole: The City Ball-Breaker.”

An early co­nun­drum was gain­ing ac­cess to the iron keys.

The de­vices had a se­cu­rity fea­ture that wiped out files af­ter 10 failed pass­word at­tempts. Sev­eral tries in, the au­thor­i­ties were get­ting des­per­ate. The break­through came when they found an e-mail sent by Dodg­son, a car fa­natic, just be­fore he left Lehman. In­cluded on the list of PINs and pass­words was “Lam­borgh­ini55.” When they tried it on his iron key, it worked. Among the un­locked files was a bal­ance sheet, it­self pro­tected with the code “maserati,” that de­tailed Dodg­son’s shift­ing as­sets and li­a­bil­i­ties. One col­umn, headed “trad­ing,” laid out trans­fers be­tween him and Hind.

An­der­son had made hand-scrawled records in notepads that made lit­tle sense at first glance. Parvizi kept vir­tu­ally no records. Hind had a de­tailed chron­i­cle of the ar­range­ment, but his notes were shrouded with codes and short­hand.

Even­tu­ally, the foren­sic team linked the var­i­ous doc­u­ments. On a mas­ter spread­sheet, Hind had listed the com­pa­nies the group had traded in, the prof­its, and the sums the var­i­ous par­tic­i­pants were owed. When com­pared with An­der­son’s and Dodg­son’s ac­counts, many of the fig­ures tal­lied. The records were cross­ref­er­enced with trad­ing data and logs of the var­i­ous e-mails, texts, and phone calls among the men.

On Oct. 19, 2012, Dodg­son, Hind, An­der­son, and Parvizi ap­peared at West­min­ster Mag­is­trates’ Court charged with con­spir­acy to com­mit in­sider trad­ing. It was the first time they’d all been in the same room.

South­wark Crown Court is an aus­tere 1980s brown-brick cube on the south bank of the Thames. The five de­fen­dants—Har­ri­son was charged in 2013—took their seats in­side on Jan. 14, 2016. Six years had elapsed since their ar­rests, dur­ing which, un­able to work, most had sep­a­rated or di­vorced. Cole had left the FSA, which it­self was gone—re­placed, in a post-cri­sis re­form, by the Fi­nan­cial Con­duct Au­thor­ity.

The new agency was rep­re­sented by Mark El­li­son, a sto­ried crim­i­nal lawyer who’d ar­gued for the Bri­tish govern­ment on cases re­lat­ing to the le­gal­ity of the in­va­sion of Iraq. The first few days of the trial were grip­ping: code names, en­cryp­tion, se­cret rendezvous. The ju­rors were en­thralled. Then came weeks of de­tails about trad­ing data and phone records, the te­dium of any whitecol­lar in­ves­ti­ga­tion, and their en­thu­si­asm waned.

The de­fen­dants gave their side of the story six weeks in. Hind and Har­ri­son de­clined to tes­tify. The first to take the stand was Dodg­son. Calmly and ar­tic­u­lately, he in­sisted he’d never dis­cussed con­fi­den­tial client in­for­ma­tion with Hind, and that the BSkyB doc­u­ments in his kitchen cup­board must have been picked up from a printer at work by mis­take.

An­der­son, in a woolen sweater, had the de­meanor of a kindly el­der states­man. Only when El­li­son probed him about the sus­pi­cious tim­ing of the trades and the bugged con­ver­sa­tion in his of­fice did a bite creep into An­der­son’s Scot­tish lilt. Many of the com­pa­nies they in­vested in were long known to be M&A tar­gets, he said. If they had ac­cess to price-sen­si­tive in­for­ma­tion, why had they lost so much money on other trades?

And then there was Parvizi’s tes­ti­mony. Ju­rors laughed as he ex­plained how noth­ing he said could ever be taken at face value, be­cause he was an in­cur­able ex­ag­ger­a­tor—a habit he re­ferred to as “adding VAT,” af­ter the Bri­tish sales tax, to his com­ments. I’ll give you an ex­am­ple, Parvizi told El­li­son in a vi­cious tone: “You’re a very, very hand­some man.” The court­room roared. For the FCA in­ves­ti­ga­tors in the gallery, it was tor­ture.

Only on the third day, when El­li­son’s cross-ex­am­i­na­tion be­gan, did things ap­pear to un­ravel. Parvizi’s de­fense was es­sen­tially that the en­tire mar­ket was built on blus­ter. He main­tained he’d never known the ba­sis of Hind’s in­for­ma­tion. In his world, he said, it was an un­spo­ken rule never to ask the source of a tip. “In ev­ery ru­mor there is un­cer­tainty,” he said, dis­miss­ing the idea that he was ever in re­ceipt of a sure thing. But Parvizi also vol­un­teered that he’d started a few ru­mors: He de­scribed phon­ing a Fi­nan­cial

Times jour­nal­ist to “plant the seed” about a po­ten­tial bid for Sky and told how he’d made money on a penny stock by fab­ri­cat­ing a story about a Malaysian busi­ness­man.

The judge abruptly stopped the pro­ceed­ings and sent the jury out. Parvizi ap­peared to have ad­mit­ted to mak­ing mis­lead­ing state­ments—a crim­i­nal of­fense, but not one he was charged with. The judge ad­vised Parvizi that he didn’t have to an­swer any fur­ther ques­tions that might in­crim­i­nate him. Parvizi was aghast. As far as he was con­cerned there was only one rule: Thou shalt not trade on what thou know­est to be in­side in­for­ma­tion. When El­li­son ex­plained that there were quite a few other laws—a whole book of them, in fact—Parvizi be­gan to floun­der. “If ev­ery­one told the truth,” he said, look­ing around the court­room for sup­port, “the stock mar­ket would not move.”

The jury de­lib­er­ated from April 25 to May 9. Hind read a text­book. Parvizi checked stock prices on his phone. He’d re­cently changed his What­sApp pro­file pic­ture to an im­age of two dice— one that read “guilty,” the other “not guilty.”

Fi­nally the jury re­turned and read its ver­dict for each man in turn. The first two, Dodg­son and Hind, were found guilty—and then Parvizi, An­der­son, and Har­ri­son were all ac­quit­ted. Har­ri­son pat­ted Dodg­son’s shoul­der, and An­der­son squeezed Hind’s hand. Parvizi left im­me­di­ately, with­out ac­knowl­edg­ing his co-de­fen­dants, ex­it­ing the court­room with a smile on his lips.

Three days later, Dodg­son and Hind re­turned to be sen­tenced. Har­ri­son came in sup­port; at one point, re­turn­ing from a break, he ac­ci­den­tally walked to his old seat in the dock. Dodg­son’s and Hind’s lawyers of­fered mit­i­gat­ing cir­cum­stances—young chil­dren, drugs, di­vorce—but Judge Jeffrey Peg­den wasn’t moved. In­sider deal­ing is “not a vic­tim­less crime,” he said. Peg­den gave Dodg­son four and a half years, the long­est-ever U.K. sen­tence for the crime, while Hind got three and a half. They were led out of the dock, Hind wheel­ing a large suit­case be­hind him.

At a press brief­ing, FCA in­ves­ti­ga­tors did their best to spin the out­come as a vic­tory. Ev­ery conviction sends a mes­sage, they said. Three other men ar­rested in the re­lated March 2010 raids had pleaded guilty, bring­ing their over­all hit rate in the Taber­nula probe to five out of eight.

The FSA and then FCA had de­voted eight years and $20 mil­lion to the case—dou­ble the de­fen­dants’ al­leged prof­its. And Parvizi and An­der­son, whose un­canny trad­ing had trig­gered the in­ves­ti­ga­tion, had walked free. Was it worth it? Cole, who has a new job as gen­eral coun­sel of PwC, thinks be­fore an­swer­ing. “In­sider-trad­ing cases will al­ways be dif­fi­cult,” she says. “They are time-con­sum­ing and ex­pen­sive, and if you’re a smart City trader, you’re un­likely to leave a smok­ing gun. But it’s cru­cial that they stick with it.”

Re­gard­less of his ac­quit­tal, the Mad Punter is likely done with the stock mar­ket. Be­fore the ver­dict, dur­ing his tes­ti­mony, Parvizi said that no trader would ever talk to him again. “I’m in court to tell the truth,” he said. “The game is up.” <BW>

“If ev­ery­one told the truth, the stock mar­ket would not move”

Parvizi (right) walk­ing with An­der­son Un­der Sur­veil­lance

Hind in his BMW

Parvizi and Hind

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