Spread-bet ring 'used illegal tips to make millions'

An insider dealing ring being investigated by the City of London police could have made thousands of fraudulent transactions and used around a dozen financial and betting firms, it emerged yesterday.

The investigation has been widened in recent days, with police increasingly hopeful of amassing enough evidence to seek prosecutions.

One senior broker in the London offices of CSFB, one of Europe's largest investment banks, has been dismissed from his job and is on police bail, along with four others who are not believed to have worked in the City. They are accused of netting more than £2m from a string of deals using information gleaned from confidential documents and client meetings at CSFB.

The five, all in their 20s or early-30s, are believed to have placed "spread bets" on the future movements of shares about which they had insider knowledge. Spread betting is a form of high-risk gambling favoured by young City traders, where the potential rewards from correctly predicting a share price movement increase dramatically in line with the size of the move.

The suspected fraud was first brought to police attention last year by Stuart Wheeler, the millionaire Conservative party donor who founded IG Index. Officials at his spread betting firm noticed large, unusual bets being placed. And last night it emerged that the insider dealing ring was using even more complex financial instruments, including derivatives, traded by other City finance houses.

A senior detective from the City of London force was quoted as saying: "We now have a list of at least ten firms. We may find more we want to look at. The investigation is still ongoing."

The investigation has attracted the attention of the Financial Services Authority, the City's new super-regulator, which is responsible for probity at financial dealing firms. Its US opposite number is also believed to be watching developments.

There is no suggestion that any of the firms helping with the inquiry were knowingly involved with the ring.

Superintendent Ken Farrow, the senior officer in charge of the case, said: "Our inquiries so far show that each of the firms is very much the victim in this case."

Insider dealing is rarely detected and punished in the UK, where there have been fewer than a dozen successful prosecutions in the past fifteen years.

The sacked broker has not been named but he faces disciplinary action from the FSA. If he is found guilty, he could lose his licence to work in the City.