Financial Regulatory Forum

By Judith Gross

The following is a guest column for Complinet  by Judith Gross, the principal and founder of JG Advisory Services. She develops compliance training for hedge funds, specializing in compliance and related topics, such as insider trading. The views expressed are her own.

Compliance regulations couldn’t get any more press coverage than they do today, given the almost daily raft of new SEC and Treasury rules. Putting the proposed and actual laws aside, however, have you ever stopped to wonder what the backbone of compliance law is?

The answer is the US Sentencing Guidelines, which were enacted in 1991 and later amended in 2004. These Guidelines set forth the sentencing recommendations for a variety of criminal offenses, including those for “organizations,” such as a hedge fund. Thus, if a hedge fund is convicted of engaging in criminal conduct, the court looks to these Sentencing Guidelines for a recommendation on penalties. (more…)

By 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…)