The SEC’s increasingly sophisticated ability to, in Friestad’s words, connect “patterns of trading to sources of material nonpublic information,” therefore, should sound as an alarm bell to professional traders and portfolio managers whose otherwise innocent trading may come under enhanced scrutiny, and to compliance departments tasked with administering information controls, reviewing employee personal trading and conducting post-trading surveillance reviews. Compliance officers should not only seek to understand these new approaches but, using trader-based criteria and methodologies, consider adopting their own procedures to proactively surveil for possible misuse of information and strategically focus their prevention and detection efforts. If faced with an insider trading investigation, firms should consider whether trader-based methods were used by the staff to identify the trading or purported source of information at issue.
‘Enforcement 40’ for 2020
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