Alerts

The Federal Government Continues Its Crackdown On Insider Trading By Hedge Funds

November 14, 2009

In comments made this week at the Bloomberg Washington Summit, Securities and Exchange Commission Enforcement Director Robert Khuzami stated that the recently filed insider-trading cases involving hedge funds reflect “systemic” misconduct which the SEC believes pervades the industry. Mr. Khuzami reproached “funds whose business model consisted of vigorous attempts to collect information from corporate insiders and to utilize that information to trade.” Such a practice was, in his view, “potentially more dangerous” than previous insider-trading cases, which he characterized as reflecting “opportunistic” behavior. While acknowledging that “the vast majority of hedge funds and others operate in a lawful manner,” Mr. Khuzami warned that, “there are some aspects to hedge fund operations that do give enforcement types like myself concern,” including algorithmic trading, dark pools and a lack of a corporate culture of compliance. Mr. Khuzami warned that those who trade on the basis of material nonpublic information “should be worried,” echoing a theme that prosecutors sounded in a series of recent criminal insider trading cases and by the SEC in related civil insider trading enforcement actions.