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Connecticut hedge fund investigated by SEC

A Connecticut run hedge fund has come under the scrutiny of the Securities Exchange Commission (SEC). Though the hedge fund in question appears to have performed admirably, accusations are being made regarding insider trading and breach of fiduciary duty occurring by at least five employees working for this company.

One portfolio manager for the company was accused of being privy to information from a neurologist regarding the results of clinical trials for a particular drug. It is claimed by the SEC that this information enabled the hedge fund and other corporate officials and investors to make as much as $276 million in net gains.

There are reasons why insider trading regulations are in place. However, determinations as to whether insider trading did occur are not cut and dry or even easy to make. Officers and directors have a right to invest in companies that they also work for, and increases in their investment portfolio is not the same as suggesting that illegal insider trading practices took place.

Attorneys, judges and federal officials need to look at the individual circumstances of a particular case before determining whether any illegal activity took place, and whether any harm was actually done. Every SEC claim is singular and is often dependent upon varying interpretations of federal securities law.

Attorneys will have to dig into all of the records for such transactions to determine whether any insider trading actually occurred. The penalties for such alleged violations can be severe. However, the burden is upon the SEC to demonstrate that illegal wrongdoing took place.

Source: The Washington Post, "SEC preparing lawsuit against SAC hedge fund," by Dina ElBoghdady, Nov. 28, 2012

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