A City trading entrepreneur who funded a lavish lifestyle with the criminal proceeds of insider dealing was handed a record four-year prison sentence yesterday.

James Sanders, 35, founder of the now-defunct spread-betting firm Blue Index, had previously pleaded guilty to ten counts of insider dealing.

He and his wife, Miranda, racked up profits of £1.5 million after using relatives to gain inside knowledge of impending takeovers by US-listed companies.

In a surprise move, Mrs Sanders, 34, was sent to prison for ten months, in spite of having two small children aged 5 and 6. She had pleaded guilty to five insider dealing charges.

Henry Blaxland, QC, confirmed last night that he was considering an appeal against Mrs Sanders’ sentence because of the potential impact on the young family.

In a similar case last year, Christian Littlewood was sentenced to 40 months in jail for insider dealing. His wife and co-conspirator, Angie, was given a 12-month suspended sentence. They have three children.

In the Sanders’ case, the children are expected to be looked after by Mrs Sanders’ younger sister throughout the prison term. Her elder sister, Annabel McClellan, is serving an 11-month prison sentence in the United States for her role in the scam.

Sanders, who was also disqualified as a director for five years yesterday, and his wife enjoyed a spectacular lifestyle. At the time that the family’s assets were seized, he had several Ferraris, an E-type Jaguar that they had used to travel to France on holiday and several upmarket properties.

During a two-year investigation, the Financial Services Authority found that Sanders had amassed his own £100,000 “car fund” and the couple and spent £50,000 on watches, clothes, holidays and wine. As well as spending £150,000 improving the family home in Kensington, West London, they invested £60,000 in premium bonds and had £200,000 in cash. At the time of the con, which took place between 2006 and 2008, Sanders was earning a basic salary of £1 million a year.

Yesterday’s sentences mark a victory for the FSA, which has been pursuing a vigorous clampdown on market abuse, particularly involving insider dealing. The investigation involved extensive co-operation with the US Securities and Exchange Commission, the US Department of Justice and the FBI.

Mrs Sanders’ brother-in-law Arnold McLellan was a senior partner and the head of mergers and acquisitions at the accountancy firm Deloitte in San Francisco. The FSA alleged that inside information about imminent deals was leaked to the Sanders, either by Mr McLellan or his wife. Sanders then used the knowledge to buy shares in advance of announced deals and benefit from the price rise that followed.

After an enforcement action by the SEC, Mrs McLellan was fined $1 million. After pleading guilty to a charge bought by the DoJ, she is serving her prison sentence. Mr McLellan denied the charges and has not faced any sanctions.

A third person involved in the scheme, James Swallow, a co-director at Blue Index, also pleaded guilty to three charges. He was sentenced to ten months in prison yesterday.

The FSA found that, between them, the three had made profits of £1.9 million from trading in five company shares, including Getty Images, the picture agency, and Kronos, a producer of titanium dioxide products.

Tracey McDermott, the FSA’s acting director of enforcement, said: “These three individuals funded very comfortable lifestyles by cheating the system and other honest investors.”

Analysis: ‘Endless’ hours finally paid off

It must rank high among the Financial Services Authority’s list of its most comprehensive investigations. After a tip-off about suspicious share trades, the regulator trawled through 26 million e-mails and listened to more than 800,000 phone calls in an investigation that began in 2007.

The regulator even devised a software program to speed up the process of sifting through its welter of information. Nevertheless, its staff spent the man-hour equivalent of two years listening to the calls for potentially incriminating information.

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The inquiry, nicknamed Kronos after one of the companies whose shares were illegally traded, was complicated by the number of regulators and their various computer systems and processes. After the FSA originally asked the Securities and Exchange Commission to become involved in July 2008, by the end the FBI and Justice Department were also swarming.

In the United States, regulators examined more than a million pages of information and looked through years of e-mails containing details about trades and deal news.

The Department of Justice and the SEC visited Britain, in October last year, to discuss the progress of the case. FSA investigators visited America in March 2011 to hold talks with Annabel McLellan.