Financial Regulatory Forum

U.S. SEC finds a new asset class for insider trading: ETFs

By Stuart Gittleman

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

David Sokol, Chairman, MidAmerican Energy Holdings, and Chairman, President, and CEO of NetJets, listens to a question during the Fortune Brainstorm Green conference in Dana Point, California in this April 13, 2010 file photograph. Former Berkshire Hathaway executive David Sokol has said he did nothing wrong in buying stock in a company that he then suggested Berkshire acquire.By Erik Krusch

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.

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SEC’s boardroom bombshell: directors can be costly

Traders work in the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2010.  REUTERS/Brendan McDermidNEW 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…)

SEC market abuse chief takes trader-based approach

By Nick Paraskeva, Complinet contributor

NEW YORK, Feb. 18, (Complinet)  - The Securities and Exchange Commission market abuse unit is using new approaches to better identify insider trading and abusive conduct by market professionals. Unit Chief Daniel M Hawke said the SEC is using a trader-based approach to look for patterns across groups of people, such as related trades across different products and markets by a single trader or connected group of traders. The new approach has given the SEC a greater ability to detect relationships among traders, and bring cases against large trading networks.

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UK plan for early notice of insider-trading probes draws criticism

By Peter Elstob

LONDON, Feb. 18 (Complinet) – UK regulatory lawyers have united in their concerns about giving the new Financial Conduct Authority the power to make insider dealing and other investigations public at their initial stage.

The government proposed giving the controversial “early publicity” power to the FCA — the successor body to the Financial Services Authority that will regulate retail, wholesale, and markets conduct of business — in a consultation document that it published on Thursday. (more…)

ANALYSIS-U.S. trading probe reveals the temptations for ‘experts’

By Emily Chasan and Liana Baker

NEW YORK, Jan 21 (Reuters) – Expert network firms, currently the focus of a major U.S. insider trading investigation, have never had to work too hard to find midlevel corporate executives willing to moonlight as paid consultants.

With consultants earning anywhere from $200 to $1,000 an hour for a meeting with hedge fund traders, working for an expert network firm — an intermediary company that matches industry consultants with hedge funds — is an easy way for executives to pad their bank accounts. (more…)

Why U.S. inside traders escape harsh sentences

US Courthouse, New YorkBy Andrew Longstreth

NEW YORK, Jan 6 (Reuters Legal) – The recent flurry of insider-trading arrests by the Manhattan U.S. Attorney has set Wall Street on edge. But if recent history is any guide, people found guilty of that crime tend to get off relatively easy, a Reuters Legal analysis suggests.

The analysis covers sentences imposed in 2009 and 2010 in 15 insider-trading cases brought by the U.S. Attorney in New York, representing virtually all those imposed in that court during this period. Of these, 13 sentences, or nearly 87 percent, were lighter than the terms prescribed by the U.S. Sentencing Guidelines — and seven of the sentences carried no prison time at all. The data from 2009, culled from a report issued last year by law firm Morrison & Foerster, reveal that only one prison term, for 63 months, was issued for insider trading in 2009.

The routine practice of departing downward from the guidelines in insider-trading cases is particularly striking given the much lower rate at which judges in the New York federal court typically do so. According to U.S. Sentencing Commission statistics from fiscal 2009, New York federal judges departed downward from the guidelines in 57 percent of all cases, a full 30 percentage points lower than for insider-trading cases alone. (more…)

U.S. trial over credit-default-swaps tests laws on insider trading

By Grant McCool

NEW YORK, April 7 (Reuters) – Were conversations between a bond salesman and a trader over credit default swaps a case of illegal insider trading? Or were they just part of the sharing of information that typically occurs in negotiations over high-yield bonds?

That depended on who was arguing in court on Wednesday as a trial began of Deutsche Bank AG bond salesman John-Paul Rorech and former Millennium Partners hedge fund portfolio manager Renato Negrin on civil insider trading charges.

The trial is a signature case for the U.S. Securities and Exchange Commission, its first enforcement involving credit default swaps, financial instruments used to insure against the default of debt issuers. Legal experts consider the case a test of whether regulators can make insider trading cases in the unregulated market for the swaps.

U.S. futures regulator wants ‘Eddie Murphy’ insider-trading ban

By Roberta Rampton and Charles Abbott

WASHINGTON, March 3 (Reuters) – The top U.S. futures regulator wants Congress to include as part of its financial regulatory reform package new securities-style firewalls and insider trading bans for commodities, the chairman of the Commodity Futures Trading Commission said on Wednesday.

The CFTC and Securities and Exchange Commission proposed the harmonized rules in October, many of which require authority from Congress. This is the first time CFTC Chairman Gary Gensler has indicated how soon he wants to begin implementing the new measures.

The CFTC is calling its insider trading ban the “Eddie Murphy rule” after the actor’s role in the movie “Trading Places,” in which traders stole an Agriculture Department report on the U.S. orange crop and then placed positions on the market.

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