How an Ex-Moore Trader Got Caught in the Most Complicated Insider Trading Investigation in British History
March 20, 2015
Julian Rifat, a former Moore Capital trader once named in a list of “Institutional Investors That Matter,” was sentenced to 19 months in jail by a London judge for insider trading. British authorities swept through the darkened streets of Oxford that Tuesday toward their appointment with a most wanted man. The quarry in this pre-dawn hunt was, of all things, a hedge-fund trader. His name was Julian Rifat, and he was a principal target of Operation Tabernula — the biggest, most complex insider-trading investigation in British history. What began that March morning, five years ago this month, might merit no more than a footnote in the annals of finance, except for this: nothing like it had ever happened before.
For years, British regulators had gone soft on insider trading. Before the 2008 financial crisis, no one had ever been prosecuted for it. But after the bust, amid all the finger-pointing, what is now the U.K. Financial Conduct Authority began hunting for scalps. Rifat, 45, got caught in the melee.
News of Tabernula, Latin for “little tavern,” swept the City of London like a monsoon. Anxious traders junked mobile phones and laptops, worried an electronic trail might bring the regulator to their door.
As in the U.S., where insider-trading investigations have chivvied out prominent hedge-fund managers like Raj Rajaratnam, the reverberations are still being felt.
On Thursday Rifat, who pleaded guilty to insider trading in November, stood in London’s Southwark Crown Court and was sentenced to 19 months in jail and ordered to pay about 259,000 pounds ($382,000) in fines and costs. Eight others have been caught up in Tabernula and an accompanying investigation codenamed Aldershot.
Moore Capital
None of the suspects has roused more curiosity in the City than Rifat. It not so much who he is as where he’s worked: Moore Capital Management LLC, the Mayfair haunt of hedge-fund magnate Louis Bacon.
Neither Bacon nor his $15 billion firm have been implicated. But the fact that someone like Rifat could be brought down like this inspires wonder and dread in London financial circles.
Pages of Shelley notebook seized in 2010 raid showing trades using inside information from Rifat.
Source: Financial Conduct Authority
Rifat had a front-row seat at one of the world’s most powerful hedge funds. Inside Moore’s offices on Curzon Street, he served as the eyes and ears of Bacon as a trader focused on financial stocks. He executed trades for the Moore Global Investors fund. The two often spoke or e-mailed, sometimes several times a day. At Thursday’s sentencing, the judge said Rifat played a “pivotal” role at Moore.
And it’s not as if Rifat was hard-up. During his best years at Moore, he pulled down as much as 1.5 million pounds.
Pocket Change
So why risk everything? Rifat and an accomplice made a mere 285,000 pounds on insider dealings — pocket change in the hedge fund world. Rifat declined to comment for this article. A spokeswoman for Moore declined to comment on the case.
“Everyone who worked with him loved him,” says Ian Brenner, who worked with Rifat at the British investment bank Dresdner Kleinwort. “The day of the arrests sent shockwaves through the City and marked a palpable sea-change.”
The scope of the investigation is only now coming to light. According to the FCA, authorities scoured 10 million emails and 110,000 lines of trading data. Sixteen separate raids, involving 143 investigators, were conducted in conjunction with the Serious Organised Crime Agency. One of the accused subsequently pleaded guilty and was sentenced to two years in prison; another was given a suspended sentence. Five have pleaded not guilty and are to stand trial in January. One has yet to enter a plea.
Decathlon Training
Until that March morning in 2010, Rifat seemed to be living the charmed life of a successful City trader. Born in suburban Wimbledon, educated at the private Blundell’s School in Devon, he more or less fell into the job. Six foot two, with an imposing physique, he’d hoped for an athletic career (he held records in the high jump and was an avid decathlete, even training with Olympic gold medalist Daley Thompson). Injuries sidelined him, and he eventually found his way to the City.
By 1997 he’d landed at Dresdner Kleinwort, since absorbed into Commerzbank AG. From there he ping-ponged to tech investment banking boutique Robertson Stephens back to Dresdner, and then, in 2004, to Moore. There a colleague introduced him to a City broker named Graeme Shelley.
No one would confuse Shelley, now 50, with a prince of the City. He’d cut his teeth at Hichens, Harrison & Co. Plc, London’s oldest brokerage, though hardly its most illustrious. His stock and trade was “color” — the “have you heard this, have you heard that” banter of the marketplace.
Gossip was precisely what Rifat needed. On any given day Bacon might call, demanding to know what was going on.
‘Wall Crossed’
Like many enterprising hedge-fund workers, Rifat soon realized he could leverage what he knew into something else: a personal trading account. Before long he cut a deal with Shelley to invest in various stocks on the side.
Pages of Shelley notebook seized in 2010 raid showing trades using inside information from Rifat.
Source: Financial Conduct Authority
By 2007 their trades had piqued the interest of the FCA. British authorities were also about to undertake separate investigations into traders who were rigging interest rates and currencies — areas that that were far richer in dollar terms but, in terms of publicity, generated less widespread interest.
Rifat carried on with trades that, in City parlance, left him “wall crossed.” In his role at Moore, he was privy to potentially market-moving information. But he crossed the wall, passing that information to Shelley for their side investments. According to the FCA, Rifat tipped off Shelley to coming Moore investments to Metro AG, the big German retailer, as well as to trades in Barclays Plc, Volkswagen AG and at least five other European stocks.
Oman Holiday
In return, Shelley kicked back some attractive perks. On Jan. 6, 2010, for instance, he sent an e-mail to his bank saying he was booking a vacation getaway to Oman, at a cost of 14,700 pounds, according to the FCA. That holiday was for the Rifat family. Two months later, Shelley bought Rifat a Range Rover for 48,500 pounds.
The beginning of the end came at 5:30 a.m. on Rifat’s 41st birthday. Having just opened his present from his wife — a white dressing gown — he padded down the stairs of his townhouse in fashionable north Oxford to answer a knock on the door. He thought it was his driver, ready to whisk him to Mayfair. Instead he was greeted by investigators from the FCA and the organized crime squad. It wasn’t the sort of neighborhood where you’d expect a dawn raid: Hector Sants, then head of the British regulator, lived nearby.
Twenty-odd investigators scoured the townhouse top to bottom. They searched a ballet bag of Rifat’s young daughter. Rifat spent the day in a jail cell with a stack of trading records. He lawyered up and refused to say anything. He would never return to Moore.
London Pubs
That day investigators also raided Shelley’s home in Uxbridge, west London. There they found hand-written notes in a jacket in the cupboard beneath the stairs. Those notes, which resemble a bookie’s jottings, linked Rifat and another City worker to various stock trades. Similar notes were later discovered in Rifat’s desk at Moore.
That other City worker, Paul Milsom, was at the time working for Legal & General Investment Management Holdings Ltd. He’d tipped Shelley 28 times to information that might move stock prices, according to the FCA. He and Shelley exchanged tips and money in several London pubs, including the Rack & Tenter, The Crispin, and The Gable. Ironically, the FCA said the investigation’s “little tavern” name had been chosen long before they knew of these meetings.
An insider trader who uses a partner has a fundamental problem: keeping track of the partner. Milsom apparently had no idea Shelley was working with Rifat, too. Shelley was ultimately given a suspended sentence and declined to comment for this article.
Victimless Crime?
When FCA investigators uncovered the Rifat-Shelley connection, it didn’t take long before they linked Milsom to the affair. Milsom, sentenced to two years, served less than 18 months. Now 47, he declined to comment for this article.
Operation Tabernula raises many questions, including the big one: just how serious is insider-trading anyway? Some academics question whether U.S. and U.K. regulators should spend so much time and money on these investigations when, for example, few banking executives have been held accountable for the excesses of the mortgage boom. The FCA maintains it’s far from a victimless crime and compromises the integrity of the markets.
“Sometimes people don’t get insider dealing,” said Georgina Philippou, the FCA’s acting executive director of enforcement and market oversight. “If you’re insider dealing, you’re taking advantage of everyone else in the market, undermining market confidence and undermining the reputation of the U.K. markets.”
For Julian Rifat, all that seems moot. Since his arrest, he has been working as a consultant. On Tuesday he returned home from a business trip to Switzerland, in time for his sentencing. Odds are, he’ll never work in the City again.
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