SEC Is “Here to Stay” On Insider Trading

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It has been over three years since the SEC filed its insider trading charges against Galleon Management and Raj Rajaratnam. When that complaint was filed, the Director of the SEC’s Division of Enforcement, Robert Khuzami promised to “roll back the curtain” and “look at patterns across all markets” for illegal insider trading. Last month, Mr. Khuzami echoed those remarks when he announced that the SEC had filed its largest-ever insider trading case and warned “would-be insider traders” that the SEC is “here to stay.”

In that case, SEC v. CR Intrinsic Investors, LLC, the SEC alleges that a group of hedge funds and their managers made $276 million in illicit profits by improperly trading on insider information about pharmaceutical clinical trial results. One of the defendants, a medical consultant for an “expert network” firm who allegedly provided the inside information on which the trades were based, entered into a settlement with the SEC and a non-prosecution agreement with the Department of Justice. The case against the portfolio manager who allegedly made the trades, and the investment adviser with whom he was affiliated, is ongoing.

Last week, the SEC filed yet another insider trading complaint, this time against ten individuals who made stock trades in advance of four merger and acquisition transactions. In SEC v. Femenia, the SEC claims to have identified a “massive, serial insider trading scheme obtaining at least $11 million in illicit trading profits” centered around a former investment banker who misappropriated the information and “tipped” his personal friends about the upcoming deals. According to the SEC, those personal friends (who are also defendants in the case) traded on the information and paid a portion of their profits to the investment banker. In some instances, the information was even “tipped” a second time to friends and family members of the original “tippee.”

According to the SEC’s statistics, it has brought 58 enforcement actions for insider trading in 2012, the second-highest total in the last ten years and the most in any year since 2008.  Those numbers confirm that the SEC really is “here to stay” on insider trading.

 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick - Securities Litigation and Regulatory Enforcement Group | Attorney Advertising

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