SEC Asks Hedge Funds for Data To Find Potential Insider Trades

By Alan Zibel
Associated Press
Wednesday, September 19, 2007

The Securities and Exchange Commission is increasing its scrutiny of the potential for insider trading at hedge funds.

In an August letter, the agency sent hedge funds a list of questions intended to identify employees and clients who would be in a position to acquire and pass along inside corporate information to fund managers.

"This is an effort to look out for potential insider trading at hedge funds and to ensure that hedge-fund advisers are living up to their obligation to detect and prevent insider trading," said Mark K. Schonfeld, director of the SEC's New York regional office.

In the letter, a copy of which was obtained by the Associated Press, the SEC office asks hedge funds to list all employees and clients, and any relatives who are officers or directors of publicly traded companies. The SEC also asked for lists of all corporate executives or officials at brokerage firms that have invested in their funds.

The letter was sent to hedge-fund managers registered with the SEC. While hedge fund advisers are not required to register with the SEC, many do.

The SEC came under congressional scrutiny last year after a former agency lawyer alleged political interference by his superiors in an insider-trading investigation involving a major hedge fund and a prominent Wall Street executive.

A report by Senate Republican staff members made public last month concluded that several missteps marred the SEC's investigation. It recommended that the agency establish a comprehensive set of procedures for conducting enforcement investigations.

Congressional investigators concluded in a report released Monday that the SEC should tighten its procedures for managing its enforcement investigations, which are separate from regular examinations.


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