On October 20, Preet Bharara, U.S. Attorney for the Southern District of New York, warned that a DOJ (Department of Justice) initiative targeting insider trading was in full gear.  On Monday, November 22, Scott Friestad, an Associate Director in SEC Enforcement, said the Commission is smarter about insider inquiries.  Let's read what they had to say.

    Preet Bharara, 10/20.   In a Client Advisory, Katten Muchin Rosenman focused on Preet Bharara's speech before the NYC Bar Association.  There, Mr. Bharara warned of a looming crackdown on insider trading, characterized insider trading as "rampant," and noted that federal law enforcement authorities were intent on cracking down on "bad actors not only at Wall Street firms, but also at Main Street companies." Mr. Bharara stated that the government "has devoted significant resources" to detecting and prosecuting insider trading and will continue to make use of court authorized wire taps.  Such comments, Katten Muchin writes, increased the likelihood that a new wave of insider trading prosecutions was not far off.

    Katten Muchin Rosenman's Take Aways.   Mr. Bharara's speech highlights the priority federal law enforcement and regulatory agencies are putting on prosecuting white collar crime in general and insider trading in particular.  Companies operating in this heightened regulatory environment must ensure that they have in place adequate safeguards and training to minimize the chances of falling victim to an insider trading incident.  Companies should take this opportunity to review and update their anti-insider trading policies and manuals.  In addition, compliance training for your entire workforce is recommended to ensure that all levels of employees have a firm understanding of their legal and regulatory obligations. A strong compliance and training regime is often a company's best defense to a regulatory inquiry. 

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    Scott Friestad, 11/22.   On Monday, Mr. Friestad spoke at a PLI conference on hedge fund enforcement and regulatory developments.  He said said just 7%-8% of cases brought by the SEC are insider trading cases, despite the disproportionate attention that those cases get.  That said, he warned that investigators have grown much smarter about conducting these investigations. 

“There’s a lot more patterns and serial insider trading than we thought had occurred.   Many of these players have repeat access to insider trading.

Mr. Friestad noted that, in addition to learning how to better identify and investigate these patterns - particularly as the incidence of insider trading has increased - technology has also improved the staff's ability to find leads in cases.  Technology tools enable them to look at vast amounts of data for indicators or red flags - e.g., like suspicious trading just before a merger is announced or other implausible actions that may have occurred across a wide array of firms.   [NYT Dealbook, 11/22]