The Financial Services Authority (FSA) has secured its most significant conviction to date with former Cazenove partner Malcolm Calvert this week being convicted on five counts of insider dealing.

The verdict yesterday (10 March) represented the FSA's most high-profile conviction and the third successful prosecution for insider dealing by the City regulator, which hailed the result as a "milestone".

The former market-maker and stockbroker, who was a partner at Cazenove until he retired in 2000, made around £103,800 from illicit trades between June 2003 and October 2004. Calvert was today (11 March) sentenced to 21 months in jail.

The jury at Southwark Crown Court took three days to find the 65-year-old guilty on five out of 12 counts of insider trading based on trades in three companies: biotech firm Vernalis, engineering company Johnston Group and water supplier South Staffordshire. Calvert used inside information to invest more than £500,000 with a friend in the three companies, which were the subject of non-public takeover bids.

Red Lion Court silk Peter Carter was lead prosecution counsel with Hugo Keith QC of Three Raymond Buildings defending.

A breakthrough came for the FSA through the use of an informant, who agreed to provide evidence against Calvert in return for leniency, a move viewed by lawyers as an adoption of US-style enforcement tactics. The co-conspirator, Bertie Hatcher, was fined £56,098 as part of his settlement with the FSA rather than face criminal charges.

Freshfields Bruckhaus Deringer financial services litigation partner Simon Orton told Legal Week: "It is plainly an important result for the FSA – it is an example of them taking on a harder case and managing to secure a conviction, and it is important to show that they are willing to take risks to get their message across."

Berwin Leighton Paisner financial services partner Nathan Willmott said: "The fact that [the FSA] secured co-operation from an insider in exchange for immunity was key to securing a conviction in this case. The FSA's aim in granting immunity to witnesses is to begin to secure guilty pleas at an early stage without the need to adduce evidence on how the inside information was passed on, and this conviction will certainly have helped achieve this.

"Obviously if they can begin to get defendants to plead guilty then they can get through a larger number of cases and avoid the risks that are inherent in jury trials."

The FSA has in recent months moved to take a tougher stance in cases of suspected market abuse as it moves to head off criticism that it has failed to regulate the City effectively. FSA research found suspicious trading preceded 29% of announced takeover deals in 2008, up from 24% in 2005.

Margaret Cole, director of enforcement and financial crime at the FSA, commented on the Calvert verdict: "The guilty verdict is a shot across the bow for any City workers who may be tempted to trade using insider knowledge. Our message is simple: if you take part in such activity, you run a very real risk of the FSA taking criminal action against you."

Last week the regulator confirmed that it was overhauling its policy on financial penalties, which is expected to dramatically increase the level of fines it hands out for serious regulatory breaches.

Click here for an interview with the FSA's Margaret Cole.

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