To explain the import of a recent enforcement action by the US Securities and Exchange Commission (SEC) against an investment adviser for failing to prevent insider trading against the context of an unsettled legal definition of “insider trading” as evidenced by the issue presented in a recent case before the US Supreme Court.
Reviews the principal issues raised by the SEC in its enforcement action, legal requirements imposed on investment advisers, and the insider trading issues presented by the US Supreme Court case.
Because the legal concept of insider trading has developed through case law and is not defined by statute, it remains uncertain, and therefore the practice of insider trading will be difficult to prevent without restricting activities that could ultimately be determined to be legal.
In light of the SEC’s high threshold for investment advisers to prevent insider trading and the uncertain legal definition of that concept, investment advisers should review their insider trading policies and err on the side of caution.
Practical guidance from an experienced former SEC counsel and SEC practitioners offers new insights into the steps investment advisers should take in response to SEC enforcement activities and nebulous legal definitions.
Morgan, N., Zwickel, A., Zaccaro, T.A. and Doan, J.Q. (2017), "SEC requires hedge funds to prevent insider trading despite unsettled legal definition", Journal of Investment Compliance, Vol. 18 No. 1, pp. 63-64. https://doi.org/10.1108/JOIC-02-2017-0014
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