Citigroup Help With Insider-Trading Case Detailed in Appeal

Among the 10,000 emails and other pieces of information that Citigroup Inc. provided to U.K. prosecutors was an item that a pair of convicted insider traders apparently thought was crucial: Two investment bankers co-owned an apartment in the Swiss Alps in Verbier.

The link between the two bankers was to form the crux of an ultimately unsuccessful attempt by a former compliance officer at UBS Group AG and a day trader to overturn their high-profile convictions. The appeal cast some light on “some of the murkier aspects” of insider trading, the judges said.

But the ruling in the case last week in London also gave a rare look at the levels of cooperation between Citigroup and prosecutors at the Financial Conduct Authority. The FCA’s lead investigator cited the bank’s chief compliance officer and another senior official when he came to the conclusion that there was nothing to suggest that anyone at the bank had done anything wrong.

The appellate court judgment shows how “bank compliance departments investigate suspicion of insider trading by their employees and how these departments interact” with the FCA, said David Corker, a London attorney who’s not involved in the case. Citigroup’s investigation was “extremely thorough,” he said.

The bank and prosecutors began their investigation in May 2019 when a mystery informant approached the FCA to say that a wealthy trader had a source at Citigroup who passed information via an intermediary. The informant turned up at the worst possible moment for the FCA, part way through its biggest insider-trading trial in years.

Citigroup worked as an adviser or sought to work as an adviser on the five deals that Choucair traded on. Both the bank and the FCA declined to comment.

Read More: Ex-UBS Compliance Officer Loses Appeal of Insider Conviction

The informant was briefly mentioned at the trial, but three weeks later the jury still convicted Walid Choucair and his friend at UBS, Fabiana Abdel-Malek. The news gave fresh impetus to their claims that the deal tips Choucair was accused of trading on came from other sources.

It was important for the FCA too, which raced to understand and “corroborate” the link between the intermediary and the alleged source inside Citigroup, the agency’s attorney, John McGuinness, said in a court filing for the appeal. The weeks of May were “unexpected and fast-paced,” he said.

By the time the appeal started 18 months later, the Citigroup investigation, run by a pair of top officials, had turned over thousands of documents to the FCA. The regulator in turn told Choucair and Abdel-Malek’s lawyers about some of the information.

Details about the Verbier chalet were found in recovered emails and attachments from one of the bankers, David Basra’s, inbox.

Lawyers for Choucair and Abdel-Malek said the discovery of the joint apartment confirmed a link between the two bankers, suggesting there was another potential source of insider tips.

But the FCA said that the new facts added little to what was already before the jury. The bankers’ lawyers emphasized that the FCA hasn’t spoken with either of them.

Attorneys for Basra said that their client has never been contacted by the FCA or had any knowledge of the deals in the case.

“The Court of Appeal’s judgment confirms that he ‘had no role or involvement of any kind,’” the lawyers at the law firm Simons Muirhead & Burton said in a statement, citing the court’s decision.

The Citigroup officials decided that Basra was unlikely to have been aware of most of the deals that Choucair traded on.

In the Citigroup probe into the informant’s tip, the bank’s global co-chief administrative officer had started from the basis that if there was no overlap between the deals and Basra’s responsibilities, then he was unlikely to have been aware of them, according to the judgment. Only if there was a role in the financing, could the banker possibly have known about the mergers, the officer concluded.

Databases Checked

Meanwhile Citigroup’s chief compliance officer was checking whether Basra had access to the databases that recorded information on the deals or possible conflicts of interest, according to the judgment. The probe determined that Basra had no computer access to the deals.

Lawyers for the defendants used the information to argue at the appeal that jurors should have been told about Basra and his friend that he co-owned the chalet with, David Johnson, and any potential ties to traders friendly with Choucair. Neither Basra nor Johnson have been accused of any wrongdoing by the FCA.

A lawyer for Johnson said after the appellate court ruling that his client “has never been involved in any insider trading of any nature.”

The jury at the trial needed to consider the possibility that “there really was a different channel, a back channel” for possible deal tips, Choucair’s lawyer, Richard Wormald said at the appeal hearing last month.

But the panel of judges rejected suggestions that Basra might have learned about the deals from sources outside of the Citigroup review, calling it “speculative.” None of the new information made a “material” difference to what the jury already knew, the court said, sending Choucair and Abdel-Malek back to prison to finish their sentences.

Neither Choucair nor Abdel-Malek applied for permission to appeal to the Supreme Court.

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