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U.S. Regulators Face Budget Pinch as Mandates Widen – NYTimes.com

May 4, 2011 By Leave a Comment

Government regulators on the Wall Street beat have long been outnumbered and outspent by the companies they are supposed to police. But even after receiving budget increases from Congress last month, regulators are still falling behind.

The Securities and Exchange Commission and the Commodity Futures Trading Commission are struggling to fill crucial jobs, enforce new rules, upgrade market surveillance technology and pay for travel.

On a recent trip to New York to tour a trading floor, a group of employees from the commodities watchdog rode Mega Bus both ways, arriving late to their meeting despite a 5:30 a.m. departure. The bus, which cost $30 a person round trip, saved the agency roughly $1,000 over Amtrak.

“We spent hundreds of billions of dollars on a hideous bailout, and now we’re not going to fund reforms to prevent another one,” said Bart Chilton, a commissioner with the agency.

The money squeeze comes as Wall Street regulators take on added responsibilities in the wake of the financial crisis, including monitoring hedge funds, overseeing the $600 trillion derivatives market and other tasks mandated by the Dodd-Frank law.

via U.S. Regulators Face Budget Pinch as Mandates Widen – NYTimes.com.

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On Insider Trading . . . and Shredding and Smashing and Purging – Law Blog – WSJ

February 11, 2011 By Leave a Comment

Memo to potential evidence-destroyers: If you find yourself suddenly needing to shred a bunch of documents or throw a hard-drive in a trash compactor, don’t later tell anyone about your plans or what you’ve done. Ever. Unless you’re standing shoulder-to-shoulder with the person and they’re completely naked.

It’s a lesson that perhaps should have been heeded by a couple of folks charged criminally on Tuesday in connection with the sprawling insider-trading case rippling through the hedge-fund world. Click here for the WSJ story; here for the NYT story.

The first is Donald Longueuil, one of two former hedge-fund managers at SAC Capital Advisors

According to the criminal complaint, filed Tuesday in Manhattan federal court, Longueuil allegedly ripped up his computer drives with pliers after reading a Wall Street Journal report on the probe late last year.

Longueuil’s version of that night’s events was recorded later, during a December meeting with a former colleague, who by then was cooperating with the government and recording conversations, according to the U.S. complaint.

“F—in’ pulled the external drives apart,” Mr. Longueuil told Mr. Freeman during their meeting, according to the criminal complaint. “Put ‘em into four separate little baggies, and then at 2 a.m. … 2 a.m. on a Friday night, I put this stuff inside my black North Face …  jacket, … and leave the apartment and I go on like a twenty block walk around the city … and try to find a, a garbage truck … and threw the s—t in the back of like random garbage trucks, different garbage trucks … four different garbage trucks.”

“When people frantically begin shredding sensitive documents and deleting computer files and smashing flash drives and chasing garbage trucks at 2 a.m. … it is not because they have been operating legitimately,” said Manhattan U.S. Attorney Preet Bharara.

via On Insider Trading . . . and Shredding and Smashing and Purging – Law Blog – WSJ.

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Just in Time for the Holidays: The Largest Insider-Trading Case Ever? – Law Blog – WSJ

November 23, 2010 By Leave a Comment

The Wall Street Journal broke the news over the weekend that federal authorities are about to bring a huge insider-trading case against a host of financial players. According to Saturday’s story, the case could “ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation.”

The criminal and civil probes are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, people close to the investigation say. Some charges could be brought before year-end.

One focus of the criminal investigation is whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide “expert network” services to hedge funds and mutual funds.

In another aspect of the probes, prosecutors and regulators are examining whether Goldman Sachs bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Goldman declined to comment.

Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation.

“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information,” the email said. “(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.”

via Just in Time for the Holidays: The Largest Insider-Trading Case Ever? – Law Blog – WSJ.

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To Crack Down on Insider Trading, UK to Require Recording Calls – Law Blog – WSJ

November 14, 2010 By Leave a Comment

There’s been plenty of focus on what U.S. regulators are doing to clamp down on insider trading. Now, their counterparts across the pond are getting in on the action as well.

On Thursday, the U.K.’s Financial Services Authority said that starting in November next year, firms will have to record the cell phone conversations of some employees as part of its push to detect insider dealings.

The rule would apply to about 16,000 mobile phones of financial employees in the U.K. who place or take client orders in the equity and bond markets, as well as in the financial and commodities derivatives markets, according to this WSJ story by Sara Schaefer Munoz. It’d be first in Europe that specifically applies to monitoring conversations on business cell phones.

The goal? To deter fraud and to assist with alleged insider trading cases, says the FSA, which is also introducing a rule that conversations related to the above transactions cannot be held on personal mobile phones, through private email, Skype or “chat” accounts.

“Even where individuals are aware they are being recorded, they have been known to incriminate themselves and/or to betray their knowledge and intent, which helps to bolster an otherwise circumstantial case,” the agency said in a statement. “Equally, recorded conversations may support an individual’s subsequent defense of his actions.”

via To Crack Down on Insider Trading, UK to Require Recording Calls – Law Blog – WSJ.

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SEC Proposes Stock-Exchange Data Repository – WSJ.com

May 26, 2010 By Leave a Comment
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The Securities and Exchange Commission proposed requiring stock exchanges to submit detailed real-time market data, a move that would cost billions of dollars and aim to help regulators diagnose market meltdowns faster.

The proposal for a common data repository has been in the works for many months but gained new urgency after the May 6 stock-market “flash crash,” a sudden drop of nearly 1,000 points in the Dow Jones Industrial Average that regulators initially struggled to explain.

Currently individual exchanges keep track of trading in their own markets, but regulators don’t have easy access to cross-market data.

SEC Chairman Mary Schapiro said the new data system “would allow us to rapidly reconstruct trading activity and to quickly analyze both suspicious trading behavior and unusual market events.”

The proposal won 5-0 approval Wednesday from SEC commissioners. It will go out for public comment before the requirements are made final.

SEC staffers estimated that the initial cost of building the data repository would be $4 billion, which would be borne by the trading venues and broker-dealers. They would incur an additional $2.1 billion annually to maintain the system and conduct market surveillance, according to SEC estimates.

via SEC Proposes Stock-Exchange Data Repository – WSJ.com.

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Delisting Watch: Daimler the Latest to “Go Dark” in U.S.

May 20, 2010 By Leave a Comment
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Daimler’s delisting is the latest sign of German companies abandoning U.S. capital markets, opting instead to list solely in Frankfurt, re-fortified. The planned delisting and deregistration of Daimler AG is the latest in this months-long trend, propelled by the growth of Frankfurt and its Xetra electronic exchange, despite a weakening euro. It is also residual of Daimler’s bitter end in the Chrysler saga.

The carmaker announced its intention to “go dark” in a letter to the New York Stock Exchange, detailing its plans to delist its shares and to deregister with the SEC. As cited in a statement by Daimler, the primary reason for the planned listing is “a significant change in the behavior of international investors, who now primarily trade in Daimler shares in Germany and through electronic trading platforms.” Of note, however, Daimler, in its recent annual report, reported consistently low trading volumes in the United States, which amounted to well below 5% of the worldwide trading volume.

via Delisting Watch: Daimler the Latest to “Go Dark” in U.S..

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Toothless No More? FSA’s Sweep Sends Signal on Insider Trading – Law Blog – WSJ

March 24, 2010 By

On Tuesday, U.K. authorities arrested six men—including an employee of U.S. hedge fund Moore Capital Management, another from Deutsche Bank and a third from a company affiliated with French bank BNP Paribas — in what the government billed as a major crackdown on insider trading in London’s financial center.

According to the Journal reports, it was a big and well-coordinated crackdown, the type you’ve seen in movies, with agents fanning out to a whole bunch of addresses at dawn. Some 143 agents from the Financial Services Authority and the Serious Organised Crime Agency moved across London and southern England Tuesday to arrest the suspects at their homes and to execute search warrants.

The FSA, the U.K.’s primary regulator of financial institutions and markets, trumpeted the insider-trading case as its largest ever.

via Toothless No More? FSA’s Sweep Sends Signal on Insider Trading – Law Blog – WSJ.

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S.E.C. Enforcement Chief: ‘Creative Investigation Techniques’ Coming

November 23, 2009 By Leave a Comment

The use of wiretaps and recordings of conversations to help underpin the insider trading case against the Galleon Group hedge fund struck legal experts as unusual, for an investigation involving the Securities and Exchange Commission.

“It is unusual,’’ said Robert S. Khuzami, the director of enforcement at the S.E.C., at a discussion of hedge fund regulation at the Practising Law Institute in New York Monday. But, a year from now, “I hope it’s more common.’’

Khuzami noted that the S.E.C. has no wiretapping authority. That belongs to the U.S. Department of Justice, which would have to act in concert with the securities regulator on a probe of potentially illegal activity.

But don’t be surprised if more creative techniques involving the capturing of electronic messages or other evidence are used as the S.E.C. tries to step up its game, in the wake of the multibillion-dollar Ponzi scheme run by Bernard L. Madoff and other fallout of the two-year-old financial crisis. Prosecutors built their case against former Bear Stearns Cos. hedge-fund mangers Ralph Cioffi and Matthew Tannin around e-mail messages.

“We will do everything we can to adopt whatever creative investigation techniques that appear appropriate to the case” being pursued, he said.

Khuzami said the commission is not just interested in insider trading or fraudulent investment management schemes. Also of interest: how assets get valued and how performance of investments get reported to investors.

continued: S.E.C. Enforcement Chief: ‘Creative Investigation Techniques’ Coming.

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