Regulators zero in on insider trading rings
NEW YORK |
NEW YORK (Reuters) - Regulators have shifted their focus on insider trading to repetitive patterns and hedge fund trading rings from one-time tip-offs, a top U.S. Securities and Exchange Commission official said on Monday.
After uncovering some of the biggest insider trading rings over the past three years, federal authorities are considering bringing charges against yet another ring of traders who may have been profiting from nonpublic information, people familiar with the matter told Reuters over the weekend.
The SEC has brought several high-profile insider trading ring cases over the last few years. In last year's Galleon case, for example, it accused hedge funds of soliciting inside tips from technology company executives and analysts. And the 2007 case against Mitchel Guttenberg ended when the former UBS Securities equity research executive pleaded guilty to passing inside information about analysts' recommendations on upgrades and downgrades to traders.
But the series of high-profile cases in this area are no accident, Scott Friestad, associate director of the SEC's division of enforcement, said on Monday.
"What we've found through these and some other investigations is that there are a lot more patterns and serial insider trading that's going on than I think we previously thought had occurred," Friestad said in comments to a Practising Law Institute conference on hedge fund regulation in New York on Monday.
"Our traditional approach to insider trading was really focused on one-off transactions. If there was a particular merger and acquisition, we would look at the trading around that event, and sometimes we would bring a case."
However, he noted those cases could sometimes be difficult to prove due to circumstantial evidence. Now the SEC looks for odd, repetitive patterns in trading data.
"What these kinds of cases have shown us is that many of these players had access to inside information and engaged in insider trading over and over again," Friestad said. "By identifying those patterns, it's a lot easier from an enforcement perspective to bring those cases."
The big cases over the past three years have also sharpened the SEC's investigators, Friestad said, and intense preparation that once took two or three years now requires less time, allowing for insider trading cases to get to the courts more quickly.
Insider trading cases represent 7 percent or 8 percent of the total types of cases the SEC's enforcement division brings each year, Friestad said.
"(The Galleon case) taught us important lessons about the way information is shared, and the types of things that have made us better and smarter," said Friestad, who oversees the SEC's national enforcement program, including insider trading and fraud cases.
While Friestad did not comment directly on the possibility of pending charges, he said the SEC continues to look at such insider trading rings. Federal authorities may, in a matter of weeks, file a series of insider trading cases against hedge fund traders, consultants and Wall Street bankers, several lawyers familiar with the situation told Reuters over the weekend.
(Reporting by Emily Chasan; Editing by Lisa Von Ahn)
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