SEC Pursuing Insider Trading Cases Involving Financial Professionals

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When Mary Schapiro replaced Christopher Cox as SEC chairman earlier this year, a number of changes were made to help eliminate financial crimes.   Now SEC staff attorneys no longer need to get permission from commissioners for a formal order of investigation or to use subpoenas. That power has been delegated to top enforcement staff, which made the investigations process much easier and has helped speed up the work they are doing.

Since 2006, when a landmark case reversed the SEC’s rule to have hedge funds register with the regulator, the industry has managed to stay largely out of the SEC’s sight.   However, the SEC’s recent internal changes are quickly being felt by hedge fund managers in the $1.4 trillion hedge fund industry.   A lot more hedge fund managers are now expect to have SEC lawyers knock on their doors more routinely to review certain documents.

Now is a period of very heightened enforcement activity and the SEC is paying extra attention to everything.    Most likely, the number of enforcement actions will go up this year and that the number of high-profile cases will also rise.

Some of the recent examples include, Mr. Rajaratnam, who founded Galleon Group in 1997, was charged with having used a network of company insiders to tip him off to information that netted $20 million in illegal profits between 2006 and 2009.    In addition, several weeks ago the SEC told hedge fund manager Arthur Samberg that it plans to file civil insider-trading charges against him and Pequot Capital Management, the firm he shut down in May after the government reopened its investigation into the matter.

Traditionally insider-trading cases make up roughly 7% of enforcement cases.    However, a report from risk consulting firm Kroll released on Monday found that increasing twice as fast in financial services as in other sectors with North America particularly hard hit by the financial crisis.

Anna Timone (195 Posts)

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