C Citigroup Inc

By Bradley Hope 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 28, 2019).

A former Citigroup Inc. employee was the alleged middleman in what authorities believe may be an insider trading scheme, according to people familiar with the matter and disclosures in a U.K. court case that wrapped up Thursday.

The U.K.'s Financial Conduct Authority is investigating whether David Johnson, who left Citi in 2013, collected details about impending deals from a former colleague and passed them to traders, the people say. The Securities and Exchange Commission is investigating the allegations, the people say. Federal prosecutors in New York also are looking into the alleged insider trading, a person familiar with the matter said.

Regulators on both sides of the Atlantic are focused on what they see as a network of traders who may have exchanged inside tips on big merger deals over a number of years, the people familiar with the matter said. The traders communicated on hard-to-trace "burner" cellphones and bet on stocks and related securities ahead of deals in order to profit, the people said.

The FCA investigation is examining Mr. Johnson's relationship with Alshair Fiyaz, a Belgian-Pakistani investor, as well as an unidentified Citigroup employee, the people said. Mr. Johnson occupies a GBP12.5 million ($15.8 million) London home owned by Mr. Fiyaz, according to documents reviewed by the The Wall Street Journal.

In response to questions about any dealings with Mr. Fiyaz, Mr. Johnson said in an email that "no service or good (whatever that means) has been provided to me by Mr. Fiyaz."

A spokeswoman for Mr. Fiyaz said he was "not aware of any ongoing regulatory investigation into him in the U.K. or abroad" and that he had never been "questioned, charged or convicted of insider dealing or financial misconduct of any kind in the U.K. or any jurisdiction." He declined to comment on the house in which Mr. Johnson lives.

A lawyer for Mr. Fiyaz added he "vehemently denies any reported claims designed to portray him as a trader engaged in unethical practices."

"We have cooperated with the FCA in relation to its inquiries into this matter, and continue to do so," said a Citigroup spokeswoman. "Fostering a culture of ethical behavior continues to be a top priority for Citi."

Some of the allegations came during the monthslong insider trading trial of Walid Choucair, a wealthy trader, and Fabiana Abdel-Malek, a former UBS Group AG compliance officer. Mr. Choucair and Ms. Abdel-Malek were found guilty this week on five charges of insider trading in a trial at Southwark Crown Court. They were each sentenced Thursday to three years in prison.

Lawyers for Mr. Choucair and Ms. Abdel-Malek declined to comment but said they intended to appeal the verdicts.

During the trial, the FCA disclosed that it had received information on May 14 that Mr. Fiyaz allegedly had a source inside Citigroup leaking him tips through an intermediary. That intermediary is Mr. Johnson, according to the people familiar with the matter. One of those people says the unidentified person at Citigroup no longer works for the bank.

In his defense, Mr. Choucair and his lawyers said Mr. Fiyaz was the source of most of his trading tips along with several other big traders. The spokeswoman for Mr. Fiyaz said in a statement that those were "untrue and scurrilous allegations."

Also during the trial, the FCA said it had found "limited telephone contact between the intermediary" and the Citigroup employee in 2015 and 2017 and that the allegation was further supported by "other material provided on a confidential basis by another source." The FCA said in the court disclosure that the Citigroup employee held a position with access to price-sensitive information, though it said the person didn't have computer access to information about the deals in the case of Mr. Choucair and Ms. Abdel-Malek.

The spokeswoman for Mr. Fiyaz said he denied providing any inside information to Mr. Choucair, nor has he ever traded on inside information. The FCA and SEC declined to comment.

Mr. Fiyaz generally has a low profile, but the Monaco-based businessman owns the St. Tropez Polo Club and spends time in the south of France on a 280-foot yacht, the Ecstasea. He also has interests in Danish real estate. He describes himself as an "investor and philanthropist," according to his spokeswoman.

There were 71 suspicious-transaction reports in the U.K. for Mr. Fiyaz's trading over the years 2013 and 2014, according to court disclosures. Financial institutions are required to file such reports for activity that is unusual or suspicious, such as trading ahead of a deal announcement when there had been no public news about it. A regulatory agency typically reviews the information and submits it to law enforcement if it believes the incident requires further investigation or involves a potential violation of law.

The spokeswoman for Mr. Fiyaz said the brokers at the institutions who issued the suspicious- transaction reports, didn't ultimately sever his accounts. "Mr. Fiyaz has no set pattern of trading. He has held on to some stock for eight years, while other stock he has sold within minutes, " she said.

Mr. Johnson said in an email that he left Citigroup in 2013. He said he was "not aware of any disclosures in the Choucair trial." He said he worked as a trader at Citigroup from September 2006 to December 2012 before setting up D10 Consultancy Ltd., a property and consulting business. Mr. Johnson's former wife, Sarah Johnson, worked for the FCA until July 31, 2010, Mr. Johnson said. She died in 2015.

Documents reviewed by the Journal show Mr. Johnson lives in a mansion around the corner from Margaret Thatcher's old home in the upscale Belgravia neighborhood. Records show that it was purchased by Mr. Fiyaz in 2014. The home is owned by Redfox Management in the British Virgin Islands, records show. Corporate records for Redfox Management show it was originally directly owned by Mr. Fiyaz until being transferred to Adulis Limited, another company in the British Virgin Islands, in February 2016.

Mr. Johnson said he rents the home from Redfox "on normal commercial terms."

Mr. Fiyaz is also the subject of a probe by the U.K.'s National Crime Agency, Britain's equivalent of the Federal Bureau of Investigation, according to people familiar with the probe. The NCA is examining an allegation that one or more employees at the NCA provided Mr. Fiyaz with information about an investigation into his trading, the people said.

Mr. Fiyaz declined to comment on that matter.

A spokeswoman for the NCA said in a statement that "any allegation of corruption" is subjected to "a thorough and detailed investigation" by its Anti-Corruption Unit. "It is not appropriate to comment further on this matter," she said.

Mr. Choucair told associates that Mr. Fiyaz said he had three people working for him at the NCA in July 2015, according to people familiar with those conversations. He told them that Mr. Fiyaz's cousin said to him that one of the people working for Mr. Fiyaz was a translator at the NCA who went to school with the cousin in the U.K., the people said.

A spokeswoman for Mr. Fiyaz said those allegations were "false and malicious."

Evidence and testimony presented at trial described how stock traders would collect tips and then feed them to financial journalists, hoping news stories would cause the stocks to move.

During a July 2014 meeting between Messrs. Choucair and Fiyaz at a London Four Seasons that the NCA secretly surveilled, Mr. Choucair, called a journalist at Bloomberg News on speaker phone with a tip about the potential takeover of Targa Resources as Mr. Fiyaz listened, according to a recording played in court and other disclosures during the trial. Jeffrey McCracken, the journalist, declined to comment. Bloomberg News didn't immediately respond to a request for comment.

During the sentencing of Mr. Choucair and Ms. Abdel-Malek, Judge Joanna Korner described the relationship of journalists eager for a scoop and traders eager for a quick profit as one of the "more unsavory" aspects of the case.

--Rebecca Davis O'Brien contributed to this article.

Write to Bradley Hope at bradley.hope@wsj.com

(END) Dow Jones Newswires

June 28, 2019 02:47 ET (06:47 GMT)

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