Challenges Facing a CCO Supervising Against Insider Trading
On June 23, 2020, the Office of Compliance Inspections and Examinations (“OCIE”) of the U.S. Securities and Exchange Commission (“SEC”) released a Risk Alert about its assessment of the compliance practices of SEC registered investment advisers that manage private equity funds or hedge funds (“private fund advisers”). In its Risk Alert, the SEC noted that over 36% of SEC registered investment advisers manage private funds, which represent a significant area of investment for pensions, charities, endowments, and others. Click here to read the SEC’s Risk Alert for Private Funds.
June 08, 2020
On May 26, 2020 the United States Securities and Exchange Commission (“SEC”) filed an order instituting administrative cease-and-desist proceedings to a registered investment adviser and private equity firm for allegedly participating in insider trading. Click here to read the SEC’s Cease and Desist Order.
According to the U.S. Securities and Exchange Commission’s (“SEC”) website, “Insider trading continues to be a high priority area for the SEC’s enforcement program. The SEC brought 58 insider trading actions in FY 2012 against 131 individuals and entities. Over the last three years, the SEC has filed more insider trading actions (168 total) than in any three-year period in the agency’s history.” Improper use of inside information when conducting any securities transaction is a serious violation of securities law. Section 204A under the Investment Advisers Act of 1940 (“Investment Advisers Act”) requires SEC registered investment advisers to “…establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such investment adviser’s business, to prevent the misuse…of material, nonpublic information by such investment adviser or person associated with such investment adviser.” Most state securities regulators have the same requirements. Investment advisers should note that this requirement is much broader than the SEC’s personal securities transaction reporting and supervision requirement under Rule 204A-1 (“Code of Ethics Rule”) of the Investment Advisers Act.
November 21, 2011
The STOCK Act, a bill that is designed to restrict the ability of elected officials to make securities trades based on non-public inside information, is gaining support in Congress.
July 17, 2008
The SEC today announced that it is charging the mayor of Beaufort, South Carolina with insider trading on non-public information he obtained while doing consulting work for a California biotechnology firm. According to the SEC, the individual was given information about new technology. The information was provided in confidence and had not been made publicly available. Shortly after receiving the information, the individual purchased shares in the company that would have netted more than $20,000 had he sold out. The individual agreed to pay $20,708 in disgorgement, $2,576 in prejudgment interest, and a $20,708 penalty.
Although the recent report concerning possible insider trading by a public pension plan administrator conducted by the Division of Enforcement of the U.S. Securities and Exchange Commission (“SEC”) involves an essentially unregulated money manager which is not subject to the Investment Advisers Act of 1940, it still offers an excellent opportunity for each registered investment adviser to review its policies and procedures regarding trading activity based upon material, non-public (“insider”) information.
March 05, 2007
In a March 1 press release, the SEC announced that it is charging “14 defendants in a brazen insider trading scheme that netted more than $15 million in illegal trading profits on thousands of trades, using information stolen from UBS Securities, LLC and Morgan Stanley & Co., Inc. The SEC complaint alleges that eight Wall Street professionals, including UBS research executive and a Morgan Stanley attorney, two broker-dealers and a day-trading firm participated in the scheme. The defendants also include three hedge funds, which were the biggest beneficiaries of the fraud.” To read the full text of the press release click here.