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Continued regulatory focus on insider trading/dealing

Insider trading and concerns surrounding information sharing remain at the top of the agenda for 2013 for the SEC and the U.S. Department of Justice (DOJ). Regulators have followed up on their successful prosecutions of Galleon Hedge Fund manager Raj Rajaratnam and Goldman Sachs director and former McKinsey head Rajat Gupta, among many others, with dozens of new investigations. These investigations touch almost every aspect of what financial services firms do. For example, the SEC and DOJ recently brought charges against a former portfolio manager and an affiliate of SAC Capital seeking more than USD 276 million in allegedly illicit gains. They also recently filed cases against a Wells Fargo investment banker who allegedly tipped off a ring of friends about upcoming deals.

The SEC and DOJ have also been aggressive in reaching outside U.S. borders when pursuing these cases. Recent examples include the settlement between the SEC and Tiger Asia relating to insider trading in the stocks of Chinese banks and the settlement of insider trading charges by a former investment banker in Brazil relating to trading in Burger King stock.

U.S. regulators are not alone in their current aggressive approach to insider trading: elsewhere, UK regulators have recently brought significant insider dealing cases, including the Greenlight Capital matter; Japanese regulators have brought a number of insider dealing cases against a well-known international bank; and the Hong Kong regulators have brought highly publicized charges in the Tiger Asia matter.

Given this level of activity, now is a good time to review policies, procedures and training surrounding insider trading and information sharing. In particular, the focus should be on business lines, initiatives or products that may have sprung up over the last few years as firms have reorganized, looking at areas where information is disseminated broadly or is shared between groups or affiliated entities. In addition, reviewing cross-border information sharing among affiliates may be beneficial. Nothing can prevent the possibility that a bad actor could engage in misconduct, but understanding the scope of the potential issues, crafting tailored policies and procedures, and conducting appropriate training, can significantly mitigate the risks.

now is a good time to review policies, procedures and training surrounding insider trading and information sharing...reviewing cross-border information sharing among affiliates may be beneficial

Legal and Regulatory Risk Note
United States