Finance industry chiefs were briefed on the changing regulatory landscape at a seminar in Grand Cayman in February. International experts from law firm Shearman and Sterling highlighted a series of recent insider trading cases to illustrate a new level of scrutiny from the Department of Justice and the Securities and Exchange Commission on white collar crime.
A series of high profile “insider trading” cases were highlighted as part of a seminar to help key players in Grand Cayman’s financial industry stay on the right side of the regulators.
Experts flagged new enforcement trends and an increasing level of expertise within the Securities and Exchange Commission when it comes to rooting out white collar crime.
Lawyers from international firm Shearman and Sterling briefed industry chiefs on their own duties in complying with regulators and law enforcement officials in the US.
The seminar at the Westin Casuarina resort, organised by Cayman-based law firm Mourant Ozannes, attracted a full-house of local fund administrators and financial services representatives.
A panel discussion involving Adam Hakki, partner at Shearman & Sterling, Lindi Beaudreault, counsel at the same firm and Adam Reback, chief compliance officer at J. Goldman and Co, focused on a number of recent cases including:
Hedge fund analyst Matthew Martoma who was charged with insider trading valued at $276million. Martoma is accused of using his connections with a doctor involved with clinical trials of an Alzheimer’s drug to get inside information and make advantageous trades. He is said to have fainted when agents knocked on his door during dinner.
The Weavering case which saw the firm’s founder and two independent directors sued for more than $100million over the collapse of its “Marco Fund” which was said to be involved in a series of fraudulent interest rate swaps. The lack of oversight from the directors, who served solely as “rubber stamps”, saw them in the dock along with those directly involved
The Newman and Chiasson cases which saw two hedge fund portfolio managers prosecuted for acting on information they had received third and fourth hand.
The Weavering case is potentially significant for Grand Cayman because it highlights the responsibility of fund directors to do basic due diligence on what is going on within their funds.
Mr. Hakki said directors needed to at least ensure funds did not stray too far from the parameters of their offering documents.
He said some of the other cases highlighted a new level of scrutiny from both the SEC and the Department of Justice.
He said new methods were being used by investigators who were widening the scope of their inquiries to crack down on insider trading.
“It has become a high priority. They are using techniques such as wire tapping, not seen before in the context of white collar crime. They are stretching the boundaries of what is considered insider trading to include fourth or fifth hand information.”
The panel also highlighted the SEC’s new aberrational performance Inquiries which focus on firms that outperform the market indexes by three percent or higher on a regular basis.
In a separate lecture at the Financial Services Regulatory and Enforcement Update on 15 February, Tim Richards, senior associate at Mourant Ozannes, outlined new requirements likely to be included in the forthcoming Data Protection Bill.
He warned that businesses could be held liable if personal information on clients was lost or stolen and should take measures to ensure all data was encrypted and held securely.
Gail Johnson Goring, legal counsel at the Cayman Islands Monetary Authority, also spoke at the event about the scope of regulatory co-operation between the organisation and the SEC and other regulators.