How to catch an insider dealerVivek Ahuja02 Feb 2011Former banker Christian Littlewood this morning received the longest custodial sentence yetdoled out for insider dealing in the UK as he, together with his wife and a third defendant, weresentenced. Financial News lifts the lid on how financial regulators set about unearthing andunderstanding the trio's wrongdoing and building their case against them.Be it deploying staff to a French territory in the Indian Ocean, raiding a garden shed, or sifting throughenough material to build a stack of A4 paper taller than Canada Square in CanaryWharf, the FinancialServices Authority deployed a range of skills during its near three-year pursuit of the trio.This morning's sentencing of Littlewood, his wife Angie and Singaporean national Helmy Omar Sa?aidmarked the culmination of an investigation that began in summer 2008 and entailed what Margaret Cole,director of enforcement and financial crime at the UK?s Financial Services Authority, termed a ?long, hardslog through reams of evidence?, in a briefing on the case yesterday.The first sign of potential wrongdoing came to the attention of the FSA?s market monitoring team, the firstpoint of contact for firms reporting suspicious transactions and whose staff have financial marketsexperience gleaned from backgrounds in fund management, corporate finance or trading.A standard review of trading patterns ahead of an August 27, 2008 announcement of a possible takeoverby Highway Insurance unearthed four accounts, all held by Sa?aid, buying small numbers of sharesregularly in the weeks before the announcement. A preliminary investigation into Sa?aid?s trading historyfound he had traded in similar fashion around 22 M&A announcements between January 2000 andNovember 2008.Thus began Operation Duke, as the FSA dubbed the investigation.The FSA?s Lee Alam said: ?We got the trading history from the firms. At that stage, we wanted to keepthe circle as tight as possible before approaching the individual.?While 15 of the announcements involved Dresdner as an adviser, the bank had no obvious involvementon Highway, so more digging was needed, Alam said.From a list of hundreds of insiders on the deals, Christian Littlewood stood out. After leaving Dresdner atthe end of 2007, he re-emerged at Shore Capital, one of the advisers on Liverpool Victoria?s offer forHighway in 2008.Alam said: ?There was a positive, but not total correlation between Christian Littlewood?s involvementand Sa?aid?s trading. At this point, we had enough circumstantial evidence to pass it on to theenforcement team.?Tracy McDermott, in the FSA?s enforcement team, recalled how the regulator in December 2008 setabout establishing who had what inside information and when, and in particular searching for theconnection between Littlewood and Sa?aid.?While things looked encouraging, the picture did not look as obvious then as it does now, now that weknow that Angie Littlewood knew Helmy.?The FSA had to avoid getting bogged down in the masses of details and information, and strike abalance between building enough of an accurate picture of what had transpired to present it in a legalcase.Matthew Nunan, a manager in the FSA enforcement team, said: ?We found out fairly quickly that Christianwas married and details of his wife, although we did not find evidence of any sums being paid betweenChristian and Helmy. We did find payments to a Siew Yoon Lew, with a similar date of birth to Angie andlike Helmy, a Singaporean. We initially thought she might be Angie?s relative.?Finding out from the Littlewood?s marriage certificate that Angie and Siew Yoon Lew ? who traded inseveral of the Dresdner-related stocks - were the same person, a fact backed up by tax records, proveda major breakthrough in the FSA?s understanding of events and explained a raft of financial transactionsbetween Siew and Sa?aid, whose wife she also provided an employer?s reference for, according to theFSA.By March 2009 the FSA felt ready to move, and a complex exercise involving 22 of its staff in conjunctionwith City of London police, searched four premises, simultaneously arresting the suspects andrestraining their assets through the courts. McDermott described launching searches as ?an incrediblyserious step that we do not undertake lightly?, given their disruptive effect on their targets.There was one problem ? Sa?aid was not at either of his two listed addresses.Between April and October 2009 FSA staff painstakingly sifted through the evidence they had garnered,which included evidence of further suspicious transactions, found on a floppy disc in the Littlewood?sshed, according to Nunan.In all, the regulator had seized hundreds of thousands of documents, amassed 1700GB of computerisedmaterial, 43,000 hard-copy pages and 10 years? worth of banking and trading records across 150banking accounts and 18 trading ones. It also reviewed phone records.?Printed out, I?m told that would amount to 50,000 trees? worth of books or a stack of A4 higher thanCanadaSquare,? remarked Nunan. ?It gives you a flavour of how much we took away in March and the followingmonths.?All this time, the FSA was still searching for Sa?aid, a process staff likened to looking for a ?needle in ahaystack?.The FSA said the information and documents it reviewed revealed the extent of the complex accountingthe Littlewoods used, and helped the regulator compile complicated charts showing the extent and timingof the flow of money between the three suspects in each stock.A phone contact listed as ?Helmy Mayot? provided the first clue as to Sa?aid?s whereabouts ? pointing toFrench overseas territory of Mayotte in the Indian Ocean. FSA staff admitted that until then they had noidea where the French territory even was. As it turns out, Helmy had been shipping pizza ovens from theUK to Mayotte with the intention of opening a pizza delivery business there, the FSA said.The regulator contacted the borders agency in case he had gone back to Singapore, and gradually itpieced together the picture and then had a decision to make. Applying for an international arrest warrantand seeking extradition of Sa?aid to face charges in the UK ? another first for the FSA ? meant having tohave a firm intention to charge him. ?It was an enormously important moment when he was spotted inMayotte,? recalls Nunan. Two FSA staff travelled to the territory to press the case for extradition.External legal counsel was brought in at this point, to help the FSA ascertain the best approach tobuilding the case, including choosing which stocks that were allegedly traded to use to best illustrate itscase, the extent of the wrongdoing, the length of time it had been occurring.McDermott said: ?We needed to capture as much as possible of the substance of the case in as narrowa way as possible.?Having whittled down the list of potential stocks to use at trial to nine from more than 50 potential stocksuncovered in the investigation, the FSA secured a guilty plea from the Littlewoods to eight of the countslate last year. Those pleas only became known after Sa?aid at a separate hearing last month, alsopleaded guilty to the same counts, paving the way for today?s sentencing.?We did a lot of preparation work on the case over Christmas,? said Nunan, ?as we did not know whetherSa?aid would be fighting the charges at trial?.The successful prosecution of the trio marks the FSA?s sixth successful case against insider dealers, andCole said last month: ?It seems that the penny is beginning to drop.?-- write to vivek.ahuja@dowjones.com