SAC Capital, the controversial hedge fund and its traders (at affiliate CR Intrinsic) have been the subject of investigation for months.
The firm has agreed to pay $614 million to settle charges that it traded illegally on insider information. The charges were related to sales of nearly $1 billion in shares of two drug companies after a firm employee received and shared inside information about problems with Alzheimer’s drugs being developed by the companies.
What is surprising about this case is that most pundits did not expect insider trading violations to come to light without direct testimony from a firm employee with major evidence of wrongdoing. While civil charges have been brewing related to negligence in oversight or failure to provide adequate supervision of traders, in a surprising turn of events, the hedge fund announced settlement with the SEC of insider trading violations.
This news puts a very sharp (and expensive point) on the role that compliance has in preventing and detecting violations of US securities laws relating to insider trading. Managers must be aware of their roles in supervising and managing traders and how to use compliance to prevent and detect potential violations.
