One if by land, and two if by sea.

In my April 14 entry, titled “If I had a hammer . . . ,” I wrote that the U.K.’s treasury chief hopes to pass legislation this year allowing the Financial Services Authority to grant whistleblowers who report market manipulation immunity from prosecution. I opined that the FSA should proceed cautiously, since the legislation could prompt individuals who have engaged in wrongdoing to concoct stories about innocent colleagues in order to save their own skins. Now the FSA reports that more than a quarter of the takeovers in the U.K. last year were preceded by suspicious trading, including possible insider trades.

The British financial regulator, facing criticism that it is not as aggressive as our SEC in pursuing market abuse, will apparently increase its oversight of trades consummated prior to the announcement of takeovers. The FSA has announced that it will begin to criminally prosecute more individuals and request imprisonment as punishment. To that end, it has augmented the number of criminal lawyers on its staff by 150 percent. It also intends to utilize all the tools in its investigative arsenal, including “calling suspects and their families and friends after it becomes aware of an abnormal movement in a stock and ‘before recollections have dimmed.’” Finally, the FSA says it will push individuals to report suspicious trades – among rivals and even within their own firm.

In a world that has become increasingly flat, the FSA appears ready to bring down the hammer to combat insider trading. It remains to be seen whether it will emulate our DOJ, which has demonstrated that it is not shy about prosecuting insider trading whose effects span multiple time zones. Most recently, Hafiz Muhammad Zubair Naseem, a Pakistani national who worked for Credit Suisse in Manhattan, was convicted in federal court in Manhattan for tipping a Pakistani banker that TXU, the Texas energy giant, would be taken private. Any white-collar defense lawyer actively practicing against the backdrop of today’s global securities markets may do well to heed the historic midnight cry of Paul Revere: “The British are coming! The British are coming!” CP

If I had a hammer . . .

U.S.-style plea-bargaining powers have long been on British financial regulators’ wish list. Now it looks as if their wish might come true.

The Wall Street Journal, citing a “person familiar with the matter,” reported that the U.K.’s treasury chief hopes to pass legislation this year allowing the Financial Services Authority to grant whistleblowers who report market manipulation immunity from prosecution.

The British move to strengthen its market regulator’s plea-bargaining powers has taken on added significance in light of the FSA’s current investigation into allegations that traders planted false rumors about banks in trouble, and then profited from the fallout. “The new powers proposed by the government are essential to our toolkit for tackling market abuse,” an FSA spokesperson said.

It’s not clear whether the FSA is proposing a “first-in-the-door-receives-flat-out-amnesty” program like the one offered by the DOJ’s Antitrust Division, or one in which whistleblowers will be considered on a case-by-case basis, with some being offered immunity and some being required to enter guilty pleas. The former would certainly be a hammer in the British regulators’ toolkit, but it also holds the possibility of allowing opportunists to wipe their slate clean and tell phony tales about others. Our heavy reliance on informant testimony should serve as a cautionary tale to our counterparts in the U.K. as they shop for new tools. CP

Notes on a scandal.

The case of former Enron president Jeffrey Skilling – now serving 25 years for securities fraud, insider trading, and making false statements to auditors – will be argued on appeal before the Fifth Circuit in New Orleans today. Skilling’s conviction after trial stands as the only courtroom victory won by the DOJ’s Enron Task Force.

Skilling has two very compelling issues to present in the hopes of winning a new trial. First, Skilling’s lawyers argue that the government’s failure to turn over the raw notes taken by prosecutors of interviews with one of their key witnesses, former Enron CFO Andrew Fastow, deprived Skilling of a fair trial. The government claims that turning over summaries of the interviews was sufficient. However, not only did the defense specifically request the raw notes, but it is normal in many jurisdictions for prosecutors to turn over such notes. I, for one, believe the law requires it. The Skilling brief claims that by failing to turn over the notes, “the Task Force suppressed vital exculpatory evidence.” If the court rules it was error for the government to fail to provide the notes and they contained exculpatory material, Skilling could get a new trial. Second, Skilling’s lawyers argue that convictions on some of the counts in the indictment should be reversed on the grounds that fraud charges improperly alleged Skilling deprived Enron of the right to the “honest services” of its employees. The convictions in the so-called Enron Barge case were reversed on this basis. In that case the Court ruled that the defendants did not deprive Enron of honest services because employees were acting in the interests of the company.

As a working criminal defense attorney, I can tell you that cross-examination in a criminal trial is extremely challenging. Unlike in civil trials, there are no depositions to give you the opportunity for a “dry run.” Previous statements by a witness in the form of reports or notes are often turned over to defense counsel only shortly before a witness testifies. Most often, the first time you see a witness is when he begins his direct proof. That’s why it infuriates me when I see a government prosecutor, already with the deck stacked in his favor, withhold material that has been specifically requested by the defense and that might have allowed for an effective confrontation. It is my sincere hope that the Fifth Circuit uses this opportunity to send a message to prosecutors that this sort of abuse of the Sixth Amendment’s guarantee of effective confrontation will not be tolerated. I told Associated Press reporter Juan Lozano just that when he called to get my take on this.

For incisive, in-depth coverage of this issue, I highly recommend the blogs of Ellen Podgor and Tom Kirkendall. CR