A tale of improper 'front-running' on a trading desk

'Elevate, elevate' cried the ex-policeman standing in front of a motley audience that included myself and Bob, who worked for me as part of my middle office staff.

Nominally, I was his boss. In fact we were pals and soul mates - the fact that he did a damn good job never went unnoticed and we had a relationship of mutual trust and respect.

That we were both forced to give up our lunch hour to attend a (re-)education session was a fact of modern life in a busy investment bank. Compliance education had become pervasive and attendance at sessions to learn about it were all but compulsory.

We were being taught the necessity of grassing on fellow employees. The message was simple. Suspect a colleague of wrongdoing and fail to report it, and you will go to jail. Pass the buck to your boss and, should he fail to report it, then you're in the clear and he will go to jail. Unequivocal, no exceptions, no mercy.

It was a session both deeply boring and deeply sobering - the only amusement came from the discreet jibes at ex-Mr Plod, who justified all the stereotypes associated with his kind.

But the message sank in, with Bob at least. A few days later, sitting barely five feet from me, he e-mailed me suggesting an urgent meeting outside the building.

Starbucks was across the road and, cloak-and-dagger-like, we negotiated ourselves absent separately and arrived there together.

My first thought was that Bob had got a better offer elsewhere and, being highly dependent on him, I was wondering what cats I could possibly produce from which basket to persuade him to stay.

I was gobsmacked when all he wanted to talk about was his next door neighbour on the desk, Fred.

Fred was your archetypal 'cheeky chappy'. He was meant to be my trader and market maker but he and I had had many arguments about his breeching the 'Chinese Wall' and doing a sales job to the spivvier customers (if they could be called such), not necessarily UK-based.

He would regularly call these 'customers' with outlandish stories and would do a good amount of commission - much to my enduring discomfort, as he was not strictly meant to (actually he was strictly meant not to).

But I really liked the profits it generated for the team. My view was that he was front-running his book, ie improperly recommending shares owned by the bank. His view was that I, being a salesman of the old school (and regrettably his boss) didn't understand how to make money the easy way.

Though we rowed constantly about this, I usually ended up turning a blind eye for the sake of the profits of the desk as a whole.

After he was awarded the best non-guaranteed bonus on the team in a year - one of many - when bonuses weren't happening, Fred, such is the way of these things, decided that he was very hard done-by and that I had it in for him.

Actually, I liked Fred personally and wanted to keep him for his trading capabilities - hence the best bonus on the desk - but he was a constant thorn in my side, a belligerent and self-important member of the team who, to my certain knowledge, tried to get me out and himself into my job on more than one occasion.

Nothing, however, prepared me for what was to come.

Back to Starbucks and Bob. Bob, heeding the lecture just past, had decided to 'elevate' to me a situation concerning Fred. Fred, he thought (having listened to phone calls from the next desk), was passing on insider knowledge of a stock to his spivvy contacts and trying to illicit buy orders on the basis of these.

He also had noticed - in his administrative capacity - that Fred had called our home market in the Far East the previous evening and that several thousand shares of this particular company had gone on to the house trading book.

The words 'hole' and 'head' sprang immediately to mind. What was I to do? Ignore the accusations and carry on as normal? Best case, I would have lost the respect of, and with it the ability to manage, Bob. Worst case - 'elevate, elevate, or else' - I'd be in serious trouble. I saw no alternative but to take it further.

Not being allowed, anyway, to help myself to the tapes of all conversations without higher authority, I went to the head of trading with a brief sketch of what I had been told. Bob had provided me with the times of the conversations and, duly, the head of trading and I listened to what had transpired. Believe me, it was low quality stock broking.

Fred claimed on at least three phone calls that he had a mate who was close to a company which was "for certain" about to come out with a positive announcement very shortly.

Moreover, in about a month it was going to come out with an even more positive announcement and the result was going to be a sure-fire rocket ship to the stratosphere in share price terms. (None of the above ever actually happened and Fred quite accurately - and somewhat ridiculously and ironically - caught the top of the share price!).

When pressed, no, he didn't actually know what was coming but his mate did and his mate knew the company well........... Happily, none of the clients were stupid enough to fall for this line of salesmanship. But the die was cast and Fred was looking right down the barrel of a shotgun.

Worse, tapes in the home market did indeed prove that he had sold exactly the same line the previous evening to our market making team in the Far East.

Given that the idiots there had not had sufficient savvy not to buy the stock - there it was sitting on the book, which would move around the world through the time zones.

This was a source of particular consternation to me as I had a very good friend sitting on the remote trading team and was desperately worried that he would be implicated in a nasty situation through a momentary lapse of concentration. (In the event, he and his fellow traders got off with slapped wrists).

At this point, whether it was insider dealing, front running, or market manipulation had become moot. Fred was in trouble and I, via Bob, had blown the whistle.

Having elevated, I was in the clear but the buck didn't stop there. The same day as that fateful Starbucks meeting, I was in the office until very late.

First talking to the powers that be, then to Compliance - none other than PC Plod (who turned out to be a decent guy) - and finally I sat there while Plod took Fred through the incriminating tapes word by word.

A meeting that ended with Fred, shaking and distraught, being escorted from the building for what turned out to be the last time.

Several weeks passed. Lawyers, FSA regulators, more lawyers, HR, more lawyers and lots of Plod. All the while, me having to field questions from colleagues and clients as to where was Fred.

Many were innocent and caring enquiries, several - clearly - were as the result of Fred putting them up to it. It was stressful, often heart-wrenching.

Bob was summoned into a meeting with the boss of all bosses, to be congratulated on his bravery in doing the right thing. I took the flak. Flak which came from surprising quarters given the regulatory environment, though later I learned that one of the most vociferous Fred-apologists has himself been done in a fairly major way for a not dissimilar offence.

After much navel-gazing by the authorities, it was decided that as the apparent original phone call from Fred's mate 'close to the company' had been made on both their mobiles, there was insufficient proof for an insider dealing prosecution.

Fred was dismissed for misconduct but was allowed to keep his bonus (which I thought was fair).

To this very day, Fred does not know what happened to get the ball rolling. He apparently believes that, out of a wish to 'get him', I deliberately trawled through the tapes looking for dirt. However far from realistic this may be, I have always continued to let him believe it in order to protect my mate Bob.

The icing on the cake came when my big white chief - not London-based and therefore not au fait with the stringency of London compliance - criticised me in my annual review that year for 'letting the whole thing get out of hand'. Whatever happened to bloody elevate?

I, through choice, no longer work in the City (though not for Fred-related reasons). Fred - ever lucky, ever charming - secured himself another job doing much the same thing for a similar outfit - let us hope he has learned a lesson or two.

I wish him well, though my contacts tell me he and his cronies wish me little but ill. Bob too continues to work in the same industry and for this reason names have been changed and circumstances blurred.