View from City Road: Raw deal in the case of the diligent 'insider'
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Your support makes all the difference.There but for the grace of God go I. So said hundreds of stockbrokers and fund managers as they learnt of the conviction of Thorold Mackie for insider dealing. Many of them would have done the same as Mr Mackie had they heard from a company chairman that his results were going to be worse than expected. They too might have told their clients to sell their shares.
This case shows better than any other the gap between the law and City practice. Peter Runciman, then chairman of Shanks & McEwan, a waste disposal company, said in court that he had told Mr Mackie in 1991 that the company was about to issue a profits warning.
Mr Mackie was accused of 'counselling and procuring' salesmen at Bell Lawrie White, where he worked, to deal in Shanks shares for clients. Incidentally, he did not sell his own shares in the company, so there was no question of him benefiting personally from the information.
Mr Mackie was doing his job as he saw it, and as many in the City see it too. Any idea that stockbrokers' analysts or fund managers rely on ivory- tower research for their investment views is naive twaddle; they also rely on input from companies.
While some equity analysts use spreadsheets and build models of company profitability, most sound out finance directors before putting their forecasts in print. At the very least they want to know whether their models are accurate. At the most they want guidance to within a decimal place.
However lamentable this state of affairs, it works in companies' favour. Above all else, they do not want to shock the market and they would rather not make formal profit warnings as they smack of a failure to monitor and control. They find analysts a useful conduit. Finance directors drop heavy hints that trading is not going so well. The analysts duly pass on the news to their clients, and some deal.
The law cannot easily change the ways of large investors, stockbrokers and companies. The weight of tradition and money is against it. The Mackie case shows that the attempt to deal with insider dealing through the criminal system is not yet without its flaws. The Government should look again at making less clear-cut cases a matter for the regulators.
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