The SEC recently filed a potentially groundbreaking insider trading case against a former biopharmaceutical company employee based on a novel fact pattern involving what is being called “shadow trading.” Notably, the defendant, who allegedly traded in advance of an announced acquisition of his company, did not trade securities of a company to which he owed a duty of trust or confidence or a company involved in the transaction. Instead, he traded securities of a third party that was a peer company to the acquisition target, allegedly anticipating, based on inside information he received from his employer that was material to the value of the peer company’s stock price, that the peer company’s share price would materially increase after the acquisition announcement, which it did. That is a novel application of the long-established, so-called “misappropriation theory” of insider trading and serves as a reminder to private fund managers that may come into possession of nonpublic information to assess whether that information is material to the value of the shares of other companies whose securities they trade, such as peer companies or supply-chain partners (sometimes referred to as “economically linked companies”). In a guest article, Sidley partners Ranah Esmaili, Stephen L. Cohen and Barry Rashkover suggest steps for fund managers to consider in the wake of this recent case, including reviewing policies and procedures and conducting updated employee training to address risks associated with trading securities of economically linked companies. For additional commentary from Esmaili, see our two-part series on the New York City Bar Association’s Framework for CCO Liability: “Components and Proposals” (Jul. 15, 2021); and “CCO and Regulator Perspectives” (Jul. 22, 2021).