Bloomberg News
Wednesday, February 7, 2007; D03
The Securities and Exchange Commission requested 10 securities firms turn over stock-trading records for the last two weeks of September, opening a review of how Wall Street handles confidential information.
The examination is aimed at determining whether details about trades big enough to push a stock price up or down were leaked to other firms, Lori Richards, director of the SEC's office of compliance inspections and examinations, said yesterday in an interview.
The review may be the first to target a specific period of time for a group of the biggest firms and is focusing on possible insider trading at brokerages that cater to the most profitable customers, including hedge funds, Richards said. She declined to name the firms. The New York Times reported yesterday that they include Merrill Lynch, Morgan Stanley, UBS and Deutsche Bank.
"This is a fact-finding effort, not an examination based on specific tips about misconduct at any particular firm," Richards said. The agency is acting on complaints from investors such as mutual funds that information about their trades may be leaking from, or exploited by, Wall Street firms that execute the transactions, she said.
Spokesmen for Merrill, Morgan Stanley, UBS and Deutsche Bank declined to comment.
Richards's unit conducted about 2,400 examinations of brokers, mutual funds and other financial advisers during the last fiscal year, which ended Sept. 30, according to the agency's annual report. Her team referred evidence of potential violations to the SEC enforcement division in 223 instances.
About 15 percent of the reviews of brokers led to enforcement referrals, Richard said.
By looking at several companies at once, the SEC may be able to detect cases in which information about a trade at one firm resulted in an improper trade being placed at a separate firm, Richards said. If the review uncovers evidence of insider trading, it will be turned over to the SEC's enforcement unit for possible legal action, she said.