The U.S. Securities and Exchange Commission (SEC) is scrutinizing hedge funds for signs of insider trading.
The regulator has been sending out a 27-page letter to registered advisers, asking them for information about relationships between managers, employees, family members and public companies.The SEC wants to assess the risk that hedge fund managers may have access to non-public information. The regulator also wants to examine the controls that advisers have in place to prevent insider trading.
An article in the Wall Street Journal suggests the regulator is looking for the identities of any relatives who work at brokerage firms, as well as a detailed description of "any deal that a fund manager was asked to consider and turned down because the proposal was deemed inadvisable, inappropriate, unethical, or possibly illegal."
It is also asking advisers to provide a record of client and other accounts that invested in Private Placement in Public Entity (PIPE), which are privately negotiated stakes in publicly traded companies.
For new PIPE deals, the SEC is asking for the execution date the deal was agreed upon and the date the securities were received or sold.
Booming M&A markets have lately provided increased opportunities for information sharing among bankers, traders, hedge fund managers and private equity executives on Wall Street.
In March, the SEC caught a 14-person insider-trading ring that netted more than $15 million in profits and included three hedge funds, as well as a UBS research executive, a Morgan Stanley compliance lawyer, a Bear Stearns stockbroker, and a day-trading firm.
Earlier this month, a former Morgan Stanley finance vice president and her husband, an ex-hedge fund analyst at ING Investment Management, pleaded guilty to conspiracy and insider trading.
There are now some 9,500 hedge funds, with total assets of about $1.4 trillion. They are usually exempt from any direct regulation by the SEC, NASD and other regulatory bodies.
But given the size of hedge fund assets and their substantial sway over markets, there is a continuing debate over whether further regulation is required.
Over a year ago, the SEC established a hedge-fund working group in its enforcement division to look specifically at insider trading.
The SEC recently targeted the hedge fund industry with an anti-fraud rule making it easier to sue money managers who lie about investing strategies, performance, experience and risk. Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio