Insider Trading Probe: Who’s Next?

The Security and Exchange Committee has a bounty out on hedge funds that have larger than average, consistently positive market gains. Question arises, who is going to be the next Raj Rajaratnam (the indicted head of hedge fund Galleon Group) to be prosecuted by the SEC?

Raj Rajaratnam thinking

Objective Evidence

Insider trading is the trading of a corporation’s stock or other securities (e.g. bonds or stock options) by individuals with potential access to material non-public information about the company. In the U.S., trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal if this trading is done in a way that does not take advantage of material non-public information (read more about definition of insider trading).

Nevertheless, it is a daunting task for SEC officials to convict a money manager of insider trading because of the difficulty finding objective evidence that coincides with daily tasks of investors.

Is it illegal to walk into a mall retail store and ask a manager if they are busier than prior years during that fiscal quarter? Is it insider trading when you sell the stock of a company you work for because contingent liabilities are present in the business sector and could potentially hurt your company?

SEC Propositions

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the Securities and Exchange Commission is proposing new rules under the Securities Exchange Act of 1934 governing the security-based swap data repository registration process, duties, and core principles (Read full SEC Document).

Mary Schapiro, Chair of U.S. Security and Exchange Commission, comments: “The Dodd-Frank Act mandates a number of new responsibilities for the SEC to protect investors, including new authority over hedge funds, private equity funds and venture capital funds. Fulfilling these responsibilities will require the SEC to expand and improve our examination and surveillance capabilities in order to provide the type of risk-focused regulatory oversight investors deserve.”

SEC Tactics

Chairman of the Committee on Financial Services, Barney Frank, is the regulator that is putting the most pressure on the financial community. Heavy emphasis is now being placed on the consultants that sell information to hedge funds. These consultants are being federally prosecuted in hopes that they will disclose names of people higher up the ladder for bigger, “Hollywood” style arrests. Public sentiment has received increasing support of making money managers a piñata.

Jay Dahya, an economic professor at the Zicklin School of Business at the City University of New York reaffirms, “They are now focusing on information transmission, how is it that some people seem to have an advantage over others, and how is this information getting to them?”

Bigger Fish

It is yet unclear who the SEC is going to target. It can be easily stated that any fund in the top 95th percentile will receive special attention, also among the typical accounting regularities that attain audits by the IRS will be in the mist.

It is public knowledge, for example, that SAC Capital, Janus Capital, and Wellington Management have received federal requests for information. Earlier this month, Bloomberg reported that at least one employee of Advanced Micro Devices (AMD) were arrested in connection with the insider trading probes. On December 10th, a Dell (DELL) employee plead guilty to conspiracy to commit securities fraud. Primary Global Research has also been involved in insider trading probe arrests. Currently, one executive of Level Global Advisors is providing information to the FBI. Loch Capital Management, one of the hedge funds raided last month, is closing its doors. Flextronics International (FLEX) employee Shimoon and Taiwan Semiconductor (TSM) employee Manosha Karunatilaka were both charged recently with conspiracy to commit securities fraud (read article in its entirety).

Lastly, Mr. Gasparino noted that “It is unclear if company officials — or possible “tippers” of allegedly illegal insider information — are actual targets of the burgeoning probe, but this person said they are clearly on the Department of Justice’s radar screen.”

( Read more: http://www.benzinga.com/life/hedge-funds/10/12/694967/insider-trading-pr… )

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!