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By Estelle Shirbon
LONDON, March 7 (Reuters) - Former share trader Paul Milsomwas jailed for two years on Thursday for insider dealing, thefirst sentence to come out of the biggest investigation into thecrime by Britain's Financial Services Authority (FSA).
Milsom, 45, who was a senior equities trader at Legal &General, had pleaded guilty. He was ordered to pay245,000 pounds, the total profit he made from insider dealing.
He will serve half his sentence before being released onparole.
Six others have been charged as a result of the FSA'sOperation Tabernula, which began in March 2010 with coordinateddawn raids in which seven employees of institutions includingDeutsche Bank and Moore Capital were arrested. Atotal of 10 arrests have been made as part of the investigation.
Passing sentence on Milsom, judge Jeffrey Pegden said themain impact of insider dealing was a "subversive effect onmarket confidence".
Milsom cried in the dock as his lawyer, Simon Ray, describedhim as a hard-working man who had left school at 16 and workedhis way up from a first job as an office junior.
Milsom had pleaded guilty to one charge that covered 28separate instances of passing insider information to GraemeShelley, then a broker at Novum Securities, between October 2008and March 2010.
Shelley has also been arrested and charged as part ofOperation Tabernula but has indicated he would plead not guilty.
Milsom admitted he would tip off Shelley before executinglarge trades that had the potential to move a market. Shelleywould then place either spread bets or contracts for differenceintended to gain from the market move, and the pair would splitany profit.
Contracts for difference are derivatives that allow tradersto bet on stocks without having to buy the stocks themselves.
The 28 deals made by Shelley based on tips from Milsomcovered 14 stocks including Tui Travel and Invensys. The profitsplit was roughly 40 percent to Milsom and 60 percent toShelley.
VOLUNTEERED INFORMATION
Summarising the evidence just before sentence was passed,prosecutor Neil Saunders said Milsom tried to hide his tracks byusing unregistered pay-as-you-go phones with different SIM cardsto call Shelley.
The pair made over 400,000 pounds from their arrangement, ofwhich Milsom was paid about 164,000 in cash.
After his arrest, Milsom volunteered information to FSAinvestigators about a separate insider dealing arrangement hehad with another independent broker between April 2008 and April2009.
He revealed details of 15 transactions involving fivestocks, resulting in a total profit of just over 160,000 poundsof which Milsom received 81,000.
The name of the other broker was not disclosed in court.
The 245,000 pounds Milsom was ordered to pay was the totalhe had received from the 28 Shelley deals as well as the other15 transactions.
The judge said he had taken into account several mitigatingfactors in passing sentence on Milsom. These included theex-trader's early guilty plea and evidence that he was "loyal,hard-working and hitherto honest".
Operation Tabernula is part of a wider crackdown on marketabuse by the FSA, which was criticised in the past for alight-touch style of regulation exposed as inadequate by thefinancial crisis.
Prior to Milsom's guilty plea, the FSA had already secured21 convictions for insider trading.
It said Milsom's case should serve as an example to othersworking in financial services.
"His personal greed will have cost him his reputation, hiscareer and his liberty. Those who think there is easy money tobe made from insider dealing should think again," said TraceyMcDermott, director of enforcement at the FSA.
