Malcolm Calvert: insider-trading conviction stains blue-blooded Cazenove

"Be afraid, very afraid," was Financial Services Authority (FSA) chief Hector Sants' theatrical warning to the City in 2008. And this week the City watchdog was quietly celebrating its first big scalp, says the FT. Former Cazenove partner, Malcolm "Streaky" Calvert, has been convicted of five counts of insider trading. The FSA's satisfaction at securing a guilty verdict against a former employee of the "bluest of Square Mile blue-bloods" was palpable. It's certainly a big embarrassment for Cazenove, which numbers the Queen among its clients, says The Daily Telegraph. Calvert, 65, retired from the firm in 2000. Although not directly accused of any wrongdoing, Cazenove was "the common denominator", said the prosecution. It acted on all six of the proposed corporate deals on which Calvert took punts and his conviction "leaves many unanswered questions".

Contrary to popular belief, Calvert a renowned racing punter was never nicknamed Streaky because of his luck in betting, says The Times. The name dates back to 1961 when he joined Cazenove as a 16-year-old school-leaver, graduating from the post-room to become a 'blue-button' on the floor of the old Stock Exchange. Everyone had a nickname. A jovial broker with a bald head was called Moonbeam; another, skilled in moving in and out of stocks quickly, was The Snake. Calvert, "thin as a rasher of bacon and lightning fast across the exchange floor", quickly became Streaky. He was a popular, even "revered" figure at Cazenove, although he was far from a typical recruit. He rose to head of market-making and was the first dealer in the firm to be made a partner.

As familiar a figure on the racecourse as he was on the trading floor, Calvert fell in with Bertie Hatcher, the owner of a chain of betting stores, and the two became firm friends. So in 2003, when Calvert, apparently comfortably retired in Cobham, got wind of a hot takeover in the pharma sector, he asked Hatcher to buy shares on his behalf. As a Cazenove pensioner, he explained, he was in an "awkward position".

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The two swung into action in June that year. At Calvert's instigation, Hatcher bought 70,000 shares in Vermalis. Days later, the firm announced a merger with British Biotech, allowing the pair to cash out with a £7,588 profit. More deals followed, says The Guardian, and the profits got bigger. By 2005, they'd made some £103,000, with Calvert getting two-thirds of the proceeds. Hatcher often left envelopes of cash with racecourse bookies for Calvert to collect.

But, alert to the regular pattern of the pair's trades, the FSA was soon on their tail. Confronted with evidence of taped conversations with broker Hargreaves Lansdown, Hatcher agreed to testify in return for immunity from prosecution. Suffering dementia, he was later deemed too ill to appear at the trial. It was unclear whether the jury, which deliberated for three days, would convict, says The Daily Telegraph. Indeed, despite accusations that he "lied, lied, lied", Calvert intends to appeal. He should count himself lucky, says the FT. A 21-month stint in jail is nothing compared to what he would've got had he come to trial in America.

A turning point for ineffectual FSA?

Insider trading is notoriously difficult to prove, says Alex Brummer in the Daily Mail. Since the FSA took over policing insider dealing from the old "Department of Timidity and Inaction" in 2001, it has proved itself just as limp-wristed only securing its first conviction last year. Had it shown more determination, "the level of market abuse might be much lower than it is now".

So how bad is the problem? Illegal trading levels are "unacceptably high", says FSA chief Hector Sants. No kidding, says Nils Pratley in The Guardian. The regulator's annual report last year showed suspicious shares movements were detected in 29% of takeover bids, suggesting "a very dirty market". The FSA has at least upped its game lately and there are more cases in the pipeline. This week a senior Dresdner Kleinwort investment banker and his wife were charged with insider dealing and extradition proceedings have opened against a third suspect. But the FSA is stuck merely "scratching the surface of the problem".

The FSA's failure to find the inside source at Cazenove in the Calvert case is disappointing. Yet the case may mark a turning point, says Andrew Hill in the FT: it's the first time the FSA has cut a deal with an individual to confess in return for legal immunity. Next month US-style plea-bargaining becomes law. "As an incentive to members of insider dealing rings to break with their associates, that is more powerful than any headline-grabbing press statement", giving the FSA "a proper carrot" to go with its stick.