As all of you have read, the SEC and the Department of Justice
(DOJ) are conducting a nationwide series of insider trading
investigations relating to the use by hedge funds and other
investors of third-party research firms (so-called "expert
networks"). The government is investigating, among other
issues, whether the research, often paid with soft dollars,
constitutes inside information, which could trigger criminal or
civil insider trading liability for the hedge funds that use the
research.
In the past, what constituted insider trading usually was a
straightforward analysis - the investor knew the information was
nonpublic and material, but traded anyway. Those types of
situations are likely part of this investigation. But, the SEC and
DOJ may also be attempting to expand the traditional use of insider
trading statutes to third-party research where the recipient was
not aware that the research it received was based on material,
nonpublic information.
You may have situations with your portfolio investing where you are
unsure as to the scope of insider trading laws and how they might
be applied to you.
Our securities litigation group is very familiar with the relevant
cases and has followed the recent investigations that have received
so much publicity. They are available to help you understand the
scope of those statutes, answer your questions and develop
protocols to give you the comfort that you are not inadvertently
exposing your firm to possible prosecution or civil liability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.