One only has to look at the recent regulatory enforcement environment to gauge just how significant regulators, especially the US Securities and Exchange Commission (SEC), view insider trading and misuse of material information. According to the SEC’s 12 August 2013 Spotlight, the SEC’s enforcement section brought 58 insider trading actions in 2012 against 131 individuals and entities. If one was to examine the SEC enforcement actions over the last three years, then one would find that the SEC has brought more insider trading enforcement actions (168 total) than at any other time in the SEC’s history. Why? These actions were filed against over 400 individuals and entities to the sum of $600m in illicit profits and losses avoided.

Many of those caught within the SEC’s crosshairs come from positions that one would naturally expect; financial professionals and senior corporate executives who are likely to have insider information at first hand. However, more and more of those violating insider trading rules are people one might not ordinarily suspect. Recent violators include lawyers, accountants, doctors, corporate board members, public relations professionals, professional athletes, movie producers, former government regulators, consulting experts and line workers. No doubt, the advent of new technologies has made it easier for the average person to trade on the financial markets. Additionally, the ability to conduct illicit trading via this technology is easier and, when executing a scheme through a third-party such as a friend, parent and or sibling, it becomes much more difficult to detect.

However, there are reasonable and significant controls that management can implement and test to make sure that their compliance infrastructure is one that can detect and help prevent instances of insider trading and the leaking of material inside information.

Oct-Dec 2013 Issue

Berkeley Research Group