Funds auditing expert network relationships, asking for guidance
NEW YORK, Feb. 3 (Thomson Reuters Accelus) - Fund managers and investment firms are auditing their expert network relationships to ensure they do not breach insider trading rules. While many are reinforcing their rules and policies around these relationships, the fund industry has sought additional guidance from the U.S. Securities Exchange Commission (SEC) and its international counterparts.
The Galleon Case in 2010 started the industry’s self-examination of expert networks’ role in insider trading, and last week the UK Financial Services Authority (FSA) reinvigorated the issue with a £7.2 million fine given to David Einhorn and his Greenlight Capital fund. (more…)
UK insider trading fine against Einhorn a non-starter in U.S., experts say
By Stuart Gittleman
NEW YORK, Jan. 27 (Thomson Reuters Accelus) - The circumstances that led to UK trading-abuse penalties against U.S. fund manager Greenlight Capital and its portfolio manager David Einhorn probably would not have led to a similar case in the United States, securities lawyers told Thomson Reuters.
The UK Financial Services Authority (FSA) this week fined Greenlight Capital, a U.S. fund manager, and David Einhorn, its portfolio manager, for selling shares after receiving a tip that the issuer was planning an offering that would dilute the fund’s position. (more…)
Einhorn/Greenlight Capital fine highlights duty for investors to seek absolute clarity over inside information
By Martin Coyle and Alex Robson
LONDON/NEW YORK, (Thomson Reuters Accelus) – A decision by the UK Financial Services Authority (FSA) to fine hedge fund manager David Einhorn and his Greenlight Capital fund 7.3 million pounds ($11.5 million) has highlighted the need for professional investors to ascertain clearly what constitutes inside information, securities lawyers said. The FSA said that it fined Einhorn 3.64 million pounds and Greenlight Capital 3.65 million pounds for using inside information that he obtained from a broker before selling shares in a UK public company in 2009. Einhorn’s is the biggest scalp by far of the FSA’s renewed determination to punish market manipulation as part of its “credible deterrence” policy.
The regulator said that Einhorn learned from a telephone conversation with the broker that British pub company Punch Taverns was on the verge of a significant equity fundraising, prompting the New York-based financier to sell down his holdings before an anticipated fall in the shares. (more…)
Taking on trading desk risk: the lessons of UBS and MF Global
LONDON/NEW YORK, Nov. 22 (Thomson Reuters Accelus) – When the young UBS trader Kweku Adoboli turned himself in after allegedly having lost $2.3 billion on the Swiss bank’s delta one desk, many asked how such a huge loss could have happened without anyone knowing. The short answer was, in part, that Adoboli’s back-office experience gave him inside knowledge which permitted him to game UBS’ control systems and hide the fraud. The same excuse was trotted out to explain Jérôme Kerviel’s $6.8 billion loss at Société Générale in 2008, but it must surely take more than a stint in the bank office to fool banks’ risk controls systems.
Giorgio Questa, visiting professor in the faculty of finance at Cass Business School in London, said: “Banks have not understood that they will have accidents if they don’t come to terms with risk controls. It’s a question of incompetence. It’s completely clear [in the UBS case] that people weren’t doing their jobs.” (more…)
Exchange traded funds’ growth raises multiple regulatory issues
By Patrick Conroy, James Overdahl, Robert Patton and Raymund Wong; NERA Consulting, Thomson Reuters Accelus contributing authors. The views expressed are their own.
NEW YORK, Oct. 19 (Thomson Reuters Accelus) – Exchange-traded fund (ETF) strategies continue to increase in scope, involving active management and more sophisticated financial instruments. The increasing flexibility and versatility of ETFs have been accompanied by claims by regulators and others of destabilizing effects on markets and potential for abuse by market professionals. Moreover, the suitability of ETFs for retail investors and even institutions has become a source of greater concern. Furthermore, the size of the ETF market has more than tripled by number of ETFs, and more than doubled by net dollar value of assets, over the past four years, as you can see from this chart. (more…)
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U.S. SEC warns brokers over market access, sub-accounts in debut “risk alert”
By Stuart Gittleman and Brett Wolf
NEW YORK, Sept. 30 (Thomson Reuters Accelus) – The U.S. Securities and Exchange Commission (SEC) issued an unexpected warning to broker-dealers to supervise trading by customers with direct market access, especially customers that trade using master- and sub-accounts.
The notice came in the first in a continuing series of risk alerts the Office of Compliance Inspections and Examinations (OCIE) staff expects to issue. The staff did not say whether OCIE found related deficiencies, or at what level, in recent exams, or in reviewing the findings of recent exams by the Financial Industry Regulatory Authority (FINRA). (more…)
U.S. SEC finds a new asset class for insider trading: ETFs
NEW YORK, Sept. 22 (Thomson Reuters Accelus) – In its first such action involving exchange-traded funds, the Securities and Exchange Commission charged a former Goldman Sachs employee with trading on confidential information about the firm’s trading strategies and plans he learned while working on its ETF desk.
An SEC official said the facts of the case may be unique. But the element of arbitrage in underlying components of the ETF echoes mutual fund trading probes in 2003 that rocked the industry. (more…)
The Rajaratnam Verdict: Tip of the Iceberg – ANALYSIS
NEW YORK, May 18 (Business Law Currents) – The U.S. Securities and Exchange Commission’s trophy case gets a new addition with the conviction of Raj Rajaratnam, but shelf room is still available.
For all its publicity, the Rajaratnam case was merely one of many; since late 2009, insider trading probes related to Galleon have resulted in 13 additional guilty pleas. In recent months, some of the country’s most prestigious names have been linked to what appears to be a widening net of scandals. Fallout from these and others yet to be named should continue to generate headlines for the foreseeable future. (more…)
U.S. insider cases reshape policy for U.S. companies, enforcers
NEW YORK (Business Law Currents) Inside information seems to be making its way out of the office and boardroom and onto the Street where it is parlayed into lucrative stock trades. From former hedge fund mogul Raj Rajaratnam to erstwhile Berkshire Hathaway executive and reputed Warren Buffett successor David Sokol, individuals alleged to have traded on inside information are sweating in the proverbial hot seat.
Rajaratnam’s alleged violation of insider trading laws and Sokol’s alleged violation of Berkshire policy, and possibly state and federal law, are helping to shape current market norms and the future behavior of investors in U.S. capital markets. These corporate dramas are unfolding before our very eyes and today’s events offer a possible window into what post-Sokol and Rajaratnam corporate policy and insider trading enforcement may look like.
SEC’s boardroom bombshell: directors can be costly
NEW YORK, March 4 (Westlaw Business) Being an insider with a fiduciary duty sure is risky, as heavyweight Rajat Gupta is now finding out amidst serious SEC charges. So is having board members, as Goldman Sachs and Procter and Gamble are now worrying. Of great concern to each are the reputational risks and attendant costs that this might impose on them. The potential risks could relate to a broad range of issues, ranging from inside information, to disclosure of SEC investigation and board member protection. Though this likelihood may seem remote, recent experiences from Bank of America to Goldman Sachs itself show them to be painfully possible.
With a plot literally ripped from the headlines and a narrative crackling like a Law & Order script, the Commission has charged Gupta in the spreading Galleon insider trading scandal. The case links Berkshire Hathaway, Goldman Sachs and Procter and Gamble (P&G) to what is shaping up to be one of the biggest non-Madoff financial crime stories of the young century. (more…)
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