SEC's global reach to trim Hedge Fund shortcomings


THE U.S. Securities & Exchange Commission is on a mission to trim shortcomings at Hedge Fund subsidiaries outside of the States, a leading law firm claims.
SchulteRoth&Zabel (SRC), a specialist US based legal firm advising the financial services industry, cite an SEC preliminary action to freeze a trading account of Canary Island and Lebanon based traders for four months without the commission being able to satisfy basic pleading standards - in SEC v. one or more Traders in the Securities of Onyx Pharmaceuticals 2013.
The firm say portfolio managers can be held personally liable for illegal or suspicious trading in unregistered securities overseas, based on US applicable Federal Common Law, rather than on the more lax legislative regime abroad.
They also claim a mere suspicion of illegality is enough for the SEC to freeze trading accounts which the commission suspects may contain insider trading proceeds, the lawyers report in their Insider Trading Developments bulletin, summer 2014.
They say the use of material non-public information from tipsters by traders or their use of public information or political intelligence may fall foul of SEC rules or regulation.
Any such shortcoming is sufficient for the commission to hit hedge fund managers with civil penalties and a follow on Federal Court criminal case for hedge fund trading on information deemed legal in overseas territories.
SRC also cite a Swiss based trading account, held by a Brazilian national to purchase call options in H.J. Heinz stock on the day prior to public disclosure of an acquisition.
The legal firm also reports on an SEC action against Well Advantage Ltd for a $38 million Hong Kong and Singapore based trading account held by a Chinese consortium for purchase of shares in Nexen Inc in the week prior to its acquisition.
The legal firm advise portfolio managers that the the New York State Attorney General's 'Insider Trading 2.0' initiative seems to represent a desire on the NY AG's part to expand their reach of prohibited information and trading to overseas territories.

Source: SchulteRoth&Zabel