“Hey! I know about some big events about to hit the news! This merger is going to be huge!”
On November 15th, the SEC announced that they had entered a final consent judgement against William Wright, the former Corporate Controller of CEB Inc., whom the SEC had charged with insider trading.
For the obligatory legal reasons, it is “alleged” that Wright learned about an impending acquisition of his company – information that was not public at the time. His brother-in-law, Christopher Clark, was one of the next to find out about the merger. Based on this tip, Clark purchased highly speculative, out-of-the-money call options.
It was later announced CEB Inc. was being acquired for $2,600,000,000; Clark, again “allegedly”, liquidated his CEB options and made around $250k in profits – not a bad day’s work. All was well until the SEC filed their complaint roughly a year ago. Clark has already consented to multi-six figures in civil monetary penalties and is serving under a permanent injunction. As of November 12th, 2021, the SEC issued an order barring Wright from appearing or practicing before the SEC. Additionally, the SEC is currently in ongoing litigation efforts against Clark.
Perhaps it is naive to think people wouldn’t conduct themselves in such an obviously illegal behavior; however, it makes our job of finding these instances and protecting the firm very easy.
You already know to enact context-sensitive inside information policies directly targeting Insider Trading (Front Running) and the actions described above.
The next level is to enact policies monitoring the timing of the trade activity by targeting the peculiar timing and nature of the trades made in this case. Couple this information with the communications flagged by efficient Insider trading policies to provide a clear picture of the illicit behavior.
As you well know, protecting the integrity and reputation of your firm is a never-ending endeavor of anticipating, strategizing solutions, and actively mitigating risk. Ensure the ethics, integrity, and risk mitigation that you work so hard to achieve stays intact.
Establish a monitoring process that ties trade surveillance system directly with your comms. surveillance system, combining the strengths of both platforms. Identify personal trade activity with business activity, as well as the sharing of non-public information to non-privy people providing a clear picture of the misconduct.
You’ve already done the hard part – getting the various systems in place – now we just need to put the data in a flow that works for you. Integrate your systems; make your data do more for you in a unified Holistic Surveillance model.
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