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Unprecedented Era of Insider-Trading Enforcement Casts a Wide Net, With Help of Electronic Evidence

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Unprecedented Era of Insider-Trading Enforcement Casts a Wide Net, With Help of Electronic Evidence

Dec 21, 2012, 09:36 pm CST

With the help of electronic technology, those in charge of enforcing securities laws have created an unprecedented era of enforcement against those who betray workplace confidences, friends or even family members with corporate connections, to score illegal gains by buying and selling based on inside information.

While federal prosecutions in the Southern District of New York are still the center of the universe, as far as the pursuit of insider-trading cases is concerned, such charges are being pursued all over the country, reports Bloomberg.

“I don’t recall a time in history where this many U.S. attorney’s offices and the SEC have brought so many big insider cases in such a short period,” Daniel Hawke told the news agency. He is in charge of the market abuse unit of the Securities and Exchange Commission. “It shows there’s a high level of activity and energy and coordination,” he points out.

Computerized reviews of trading activity can help investigators identify suspicious patterns of trading activity for further review using more traditional methods, such as taking a look at an individual’s bank records. This expands the scope of enforcement, because regulators don’t have to establish a connection between individuals in order to start pursuing an illicit trading network, the news agency explains in a lengthy article.

Among lawyers recently in the news due to their alleged involvement in such transactions is William Marovitz, the husband of Christie Hefner, who formerly headed Playboy Enterprises Inc.

The SEC’s accusations against Marovitz resulted in agency scrutiny of both husband and wife. Christie Hefner, who said she had no idea her husband might be trading based on confidential information he gleaned from her, cooperated and was never accused of wrongdoing. Her husband settled without admitting any wrongdoing. Accused of making a little over $100,000, through improper gains and avoided losses, over a period of five years, he agreed to pay about $168,000 to the SEC, as another Bloomberg article describes in detail. At last report, the couple was living separately.

A former Harvard Law School student, Mathew Martoma, who dropped out to earn a post-graduate business degree at Stanford University is now a defendant in another high-profile case. His lawyer, Charles Stillman, says he expects the former fund manager of SAC Capital Advisors LP to be exonerated.

As an Associated Press article published around the time of his arrest last month at his Florida home details, he is accused of obtaining secret Alzheimer’s disease drug trial data from a medical professor, then using it to set up a massive insider-trading effort that allegedly made $250 million in illegal profits.

On Friday, Martoma, 38, was indicted in the Southern District of New York in what prosecutors are calling the biggest insider-trading case ever, another Bloomberg article reports. A recent New York Times article details consulting arrangements involving the medical professor, who is a cooperating witness in the case.

Insider-trading cases are easier to prosecute than other white-collar crimes, both because the essential unfairness of trading on confidential information is easy for a jury to understand and because the feds have begun using wiretap evidence to prove them in recent years, explains a Forbes blog post.

At a conference last month at Columbia Law School, writes contributor Michael Bobelian, none of the expert participants could remember the last time a defendant was acquitted at trial in a high-profile insider-trading case.

Related coverage:

ABAJournal.com: “Secret SEC Data Mining to Fuel New Insider-Trading Cases; Lawyers Targeted”

ABAJournal.com: “Rajaratnam’s Conviction Points Way Toward New Focus on Aggressive, High-Tech Securities Probes”

ABAJournal.com: “Ex-BigLaw Associate Sentenced to Record 12 Years Says ‘Excitement’ Drove $37M Insider-Trading Scheme”

ABAJournal.com: “Lawyer and His Former Law School Classmate Are Charged with Insider Trading”

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