In the UK, the FSA’s high-profile insider trading trial against dentist Neel Uberoi and his son, Matthew, continues in the Southwark Crown Court.  Prosecutors allege that Matthew leaked inside information about three deals his team at Hoare Govett was working on to his father Neel, who then allegedly made a £150,000 profit from trading on the information. Matthew was working as an intern at Hoare Govett.  The Uberois deny the charges, and an unusual trial that had been delayed by procedural wrangling resumed earlier this month.

The case is a good example of how insider trading cases are built on circumstantial evidence, but also of how defendants can point to publicly available information as the supposed basis of their trading.  For instance, prosecutors have alleged that:

• Neil Uberoi purchased shares in three separate companies in which he had no previous dealings at all, just before positive announcements were made to the market, and then immediately sold those shares.
• On each of these three occasions his son was working on the Hoare Govett team advising on the transactions that were about to be announced.
• The son researched “insider trading” on the internet the night before his father made one of the share purchases.
• The son sent a series of messages to his father encouraging him to buy or “get involved” with Chinese food.  Prosecutors allege this was a code for buying Neutec Pharmaceuticals, one of the stocks the father purchased. For example, one email encouraged his father to buy Chinese because it was the last opportunity to do so. Prosecutors pointed out that this message coincided with the fact that Hoare Govett was preparing to make a public announcement about the Neutec deal that would eliminate any insider advantage.

On the other hand, the Uberois have their own innocent explanations for most everything.  To wit:

• Matthew testified it was a coincidence that he researched insider trading on the evening of May 29, 2006, and said he did so because he had heard his employer, Hoare Govett, had been involved with an incident.
• Matthew denied the “Chinese” messages were a code and said they related to Chinese food or other restaurant meals. He said the urgency in the messages was because that evening was the last opportunity to dine with his parents because he would be away for several days afterwards.
• Neel Uberoi admited that he had never heard of Neutec until Matthew told him that people at Hoare Govett were “excited” about Neutec because they might “make money from it.” Neel said this led him to investigate the stock on a traders’ bulletin board, a public resource that was open to all, where he saw favorable comments about the company.