[ by Melanie Gretchen ] The Year of the Inside Trade: Amid the closure of firms, emerging trend of lawsuits and introduction of expensive compliance, the cost of insider just went up with the addition of insurance.  To date, rates are up 5% to 10% for hedge funds insuring themselves against fraud or insider trading litigation, according to the SKCG Group.  Covering the cost of litigation and losses from any investor lawsuits, the insurance is even higher for firms caught in the media spotlight or investor redemption. Industry Crackdown. Hedge funds have come under government scrutiny in the civil and criminal arena.  In addition, secretive partnerships must register publicly for the first time, shedding light on staff and banking relationships.  In addition the SEC and DOJ have put on high priority uncovering fraud at these firms, whether through inflated fees, falsified performance records, or improprer valuation of assets. Insurance Target. With a target directed by the government on insider trading - to date, more than 60 people have been arrestd - insurance has found a new "target audience."  Richard Canter, the president of SKCG said in a statement:

"Insurance carriers know that hedge funds are in regulators' cross hairs.  More than just insider trading, the SEC is cracking down on a variety of areas, and when regulators come knocking, the cost to defend these funds is seldom cheap and the insurers may be on the hook for it."

Post-Madoff. After too many insurers chased too few hedge funds, princes for insurance has leveled out over the last 2 years.  Currently, an estimated 40% of hedge funds employ this insurance, which does not cover expenses in the event of a guilty verdict for insider trading.  The trend has boosted the cottage industry, which protects directors and officers of hedge funds, among other things.  Thus far, Mr. Canter says, the overall market for such insurance is less than a billion dollars.  Not a throwaway figure. For further details, go to [Dealbook, 3/13/12].