Insider trading—it’s not just hedge funds
Sometimes it seems that insider trading cases are all about hedge funds. After all, the overwhelming majority of the federal government’s multi-year crackdown on insider trading has netted dozens of traders and analysts working in the $2.25 trillion hedge fund industry.
But this week’s escapades involving a former top audit partner at KPMG and his golfing buddy are reminder that the temptation to profit from inside information exists in many industries and professions.
Still, senior hedge fund reporter Svea Herbst-Bayliss reminds us in the following post, a recent survey found a good portion of people who labor for hedge funds harbor private doubts about the integrity of their colleagues. If the numbers expressed in this survey are anything close to accurate, law enforcement should be busy for quite a while longer.
By Svea Herbst-Bayliss
This week’s insider trading case involving a former KPMG partner has stolen some of the attention from the hedge fund industry. But a survey released this month suggest the regulatory heat won’t be lifting from the industry any time soon.
Half of the respondents in the hedge fund industry survey said they believe their competitors engaged in illegal activity and more than one third said they have felt pressure to break the law or engage in unethical behavior. The poll was commissioned by law firm Labaton Sucharow LLP, HedgeWorld and the Hedge Fund Association and released earlier this month.
The survey found that 30 percent of the respondents reported that they had personally observed or had first-hand knowledge of wrongdoing at work. The survey was released just days before federal agents arrested Michael Steinberg, a portfolio at SAC Capital Advisors, charging him with having traded off illegally obtained information about how technology companies would report earnings. The U.S. government has spent years investigating how SAC, a $15 billion hedge fund run by Steven A. Cohen, has managed to deliver its double-digit returns for so many years in a row.
The poll shows that 28 percent of the respondents said they thought their bosses would be unlikely to report misconduct to law enforcement officials if they discovered that a top performer was using illegally obtained tips and 13 percent of the respondents reported that leaders of their firm would likely ignore the problem.
Yet there is a big caveat with this poll: the sample size. Polling organization ORC International surveyed just 127 people who work in the hedge fund industry. By comparison a fund like SAC Capital employs more than 900 people. And to encourage people to respond the Hedge Fund Association, which helped commission the poll, promised to send iPod shuffles to 25 randomly selected participants. Some might call that a little bit too much of an incentive.