LONDON, June 20 (Reuters) - A British trader and his wife who helped fund a lavish lifestyle from illegal share dealing, were jailed on Wednesday in a landmark case pursued by prosecutors on both sides of the Atlantic.

James Sanders, who owned and was a director of now-defunct brokerage Blue Index, his wife Miranda and James Swallow, a Blue Index co-director, had last month pleaded guilty to a combined 18 counts of insider dealing between October 2006 and February 2008.

James Sanders, dubbed by Judge Peregrine Simon as "the driving force behind the criminality", was jailed for a record four years. Miranda Sanders - who was tipped off about imminent U.S. takeovers by her sister in America - was jailed for 10 months, as was Swallow.

The striking, sharply-dressed couple, who are both in their mid thirties and have two young children, saw their sentences cut by 25 percent after pleading guilty, although James initially argued his trades were legitimate stock picks.

They held hands while judge Peregrine Simon read out the case against them and kissed after sentencing. Miranda turned to smile and nod encouragingly at a woman in the court room's public gallery, who burst into tears on sentencing.

The Financial Services Authority (FSA), which brought the UK prosecution, said the three scooped almost 2.0 million pounds ($3.1 million) in profits from illegal share dealings, while Blue Index clients made around 10.2 million - a precursor to the Sanders' couple selling the business for around 8.0 million.........