City braced for hedge fund scandal

THE City could be rocked by a major corruption scandal amid claims a top banker and a leading hedge fund are being investigated for share trade collusion.

The Financial Services Authority is said to be investigating the claims, which are contained in a dossier being circulated among top bankers and which has reached the hands of the regulator.

According to the allegations, a leading investment bank trader tipped off a top hedge fund over share trades about to be made by pension funds. That allowed the hedge fund to buy or sell ahead of the big-hitting pension funds - an illegal practice known as front-running.

In return, the hedge fund is said to have funnelled more of its trading business through the bank, leading to higher fees.

The claims have been flatly denied by the bank named in the dossier and City sources are claiming they are part of a dirty tricks campaign. But the rumours were still rife on trading floors late on Friday.