How painstaking £14m investigation snared Deutsche Bank insider trading ring

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Nobody would have noticed anything odd had they been walking along the rear security wall of Buckingham Palace on 23 October 2008. Yet all around there were hidden eyes and ears trained on the activities taking place in a small office located on nearby Grosvenor Place.

For a year, a team led by the Financial Conduct Authority, alongside colleagues from the Serious Organised Crime Agency and the National Crime Agency, had been tracking a suspected insider trading ring as part of Operation Tabernula. While they had gleaned many fascinating details, they were flummoxed by some major questions.

Despite receiving a series of suspicious transaction reports about the fabulously prescient share deals the targets had placed, the officers had no idea where the trader’s information was coming from.

Who was the inside source giving this trading ring the confidence to bet £50,000 on each penny movement of shares in the brewer Scottish & Newcastle? Where had the £4.4m of profits from that trade gone? But then, the Buckingham Palace stakeout produced the breakthrough.

A bug planted in the office of a day trader called Ben Anderson – located barely 50 metres from the rear wall of the Queen’s London residence – picked up on his conversation with Iraj Parvizi, a well known City trader who had risen to prominence after working in a Kent kebab shop.

Parvizi was on a rare trip to the UK and the pair were discussing an individual who was “working at Deutsche Bank” and had “done his bollocks. Financially. That’s why he says he’s hungry ... Because you know he worked for Morgan? … he went to Lehmans, he says he got fucked on Lehman’s shares as well”.

While the pair did not name this insider, the subject of that conversation was referred to as “Hind’s man”. As the surveillance team observed Parvizi leaving Anderson’s office, he climbed into a silver BMW sports utility that belonged to one Andrew Hind, a Manchester University maths graduate and accountant nicknamed “Nobu”. He had worked at PwC and for Arcadia Group between 1997 and 1998. One of Hind’s closest friends turned out to be a top City financier called Martyn Dodgson. Everything was now clearer.

Dodgson had been a well known figure in the City since he had advised the government on its stakes in the Royal Bank of Scotland and Lloyds Banking Group as a result of the credit crunch. A graduate of Lancaster University with a first class degree in economics, he was a corporate broker at Deutsche Bank, and had previously worked at Morgan Stanley and Lehman Brothers – meaning he was privy to large amounts of price sensitive information about companies whose shares were listed on the London Stock Exchange. This stellar career was now effectively at an end.

On Thursday Dodgson, 44, was was sentenced to four-and-a-half years, after being convicted three days earlier at Southwark crown court of insider dealing, thus becoming perhaps London’s highest profile insider trader to date. Hind, 56, received three-and-a-half years for his role as the middleman. The previous longest sentence handed down for being convicted of insider dealing in the UK was four years given to Richard Joseph in 2013.

Three other alleged participants were all acquitted, including Anderson, 71, and Parvizi, 50, as well as Andrew “Grant” Harrison, 46, who also worked in corporate broking and who was alleged to have played a similar role to Dodgson.

Anderson and Parvizi admitted adding their own funds to investments carried out on behalf of Hind, but both insisted they had no reason to suspect his stock picks were based on price-sensitive insider information. In order to be convicted of insider dealing in the UK, the jury has to be satisfied that defendants were aware they were trading on inside information.

When arrested six years ago Dodgson, who was paid £601,000 a year as a managing director at Deutsche Bank, repeatedly denied to FCA officers that he was involved in personally trading shares. Yet the evidence they had gleaned suggested otherwise.

On Dodgson’s keyring investigators found the key for a red metal petty cash box, which had been discovered stashed under Dodgson’s bed at his home in Hampstead, north London. Inside the box was a specialist encrypted storage drive called an IronKey, which its makers boast is “military grade”. Dodgson said he had not used the device in years and could not unlock it.

But by cross-checking other passwords the banker had used elsewhere, investigators were able to discover that the drive was opened by the password “Lamborghini55”. The court was also told how the drive contained incriminating evidence including a spreadsheet detailing that listed coded references to the trades.

From these files investigators were able to match the trades to Dodgson, but the task was far from simple. The total cost of Operation Tabernula – which has also resulted in the convictions of three other men – came to almost £14m.

The effort involved – at peak around 40 staff and 485 applications under the Regulation of Investigatory Powers Act, the law governing the use of covert techniques by public authorities – plus the analysis of more than 500,000 lines of telecoms data, 120 trading accounts and more than 600 digital devices, including pay-as-you-go mobile phones that were routinely discarded.

Investigators also discovered Hind had bought six encrypted USB sticks, with three being found in a wall safe at his home. When asked for the passwords, he declined to provide them.

Investigators never found the key. So, like its owner, the data is locked away.

Investigation Statistics

Powered by Guardian.co.ukThis article was written by Simon Goodley, for theguardian.com on Thursday 12th May 2016 13.35 Europe/London

  • Investigation period of eight-and-a-half years over all four ‘strands’
  • Total cost of £13,958,737 (internal and external costs)
  • 10-12 ‘core’ permanent staff
  • Peak of approx 40 staff (permanent and non-permanent)
  • 485 RIPA Applications (Regulation of Investigatory Powers Act 2000, which regulates the use of and access to surveillance by public bodies)
  • 500,000+ lines of telecoms data
  • 120+ trading accounts identified
  • 200,000+ lines of trading data
  • 35,000+ recorded calls (over 560 hours) obtained from brokers
  • 600 digital devices / machines examined
  • 10 million+ individual digital items
  • 10.5TB of storage required
  • Approximately 320 hours of probe recording received and reviewed
  • 26 live witnesses (6 FCA staff, 3 experts)
  • 46 lever arch files (statements and evidence)
  • 11 tranches of served evidence
  • 195 witnesses produced 452 witness statements and 1,958 exhibits
  • 80,000 unused items on evidence review system (Introspect)
  • 22,000+ unused documents in electronic folders

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