Rajaratnam Prosecutor and Dechert Partner Jonathan Streeter Discusses How the Government Builds and Prosecutes an Insider Trading Case against a Hedge Fund Manager

Allegations of insider trading in the hedge fund industry are once again front-page news, what with the criminal and civil charges filed against former CR Intrinsic portfolio manager Mathew Martoma on November 20, 2012 and the receipt by SAC Capital Advisors of a Wells notice on the same day.  See “Fund Manager CR Intrinsic and Former SAC Portfolio Manager Are Civilly and Criminally Charged in Alleged ‘Record’ $276 Million Insider Trading Scheme,” Hedge Fund Law Report, Vol. 5, No. 44 (Nov. 21, 2012).  But insider trading considerations were never far from the minds of hedge fund managers, lawyers or compliance professionals.  This is because vigorously pursuing important corporate information is central to most hedge fund strategies, yet doing so inherently involves the risk of obtaining material nonpublic information and trading on it.  At the same time, allegations of insider trading usually damage a hedge fund business fundamentally, and often shut it down altogether.  See “Navigating the Patchwork of Global Insider Trading Regulations: An Interview with Adam Wasserman of Dechert,” Hedge Fund Law Report, Vol. 5, No. 38 (Oct. 4, 2012).  Hedge fund managers need to understand how the government thinks about this critical area, and it would be hard to find someone with better visibility into relevant government decision-making than former Deputy Chief of the DOJ’s Criminal Division and current Dechert partner Jonathan Streeter.  Streeter served as lead trial counsel for the government in the criminal trial of Raj Rajaratnam, founder and principal of the Galleon Group.  See “Galleon Management, LLC Founder Raj Rajaratnam Sentenced to 11 Years in Prison for Insider Trading,” Hedge Fund Law Report, Vol. 4, No. 36 (Oct. 13, 2011).  Prior to the recent activity involving SAC, the Rajaratnam trial and conviction occasioned the last great crescendo of interest in hedge fund insider trading.  Among other things, the trial highlighted the new centrality of wiretap evidence and caused lawyers to revisit the meaning of the “mosaic theory.”  See “Is the ‘Mosaic Theory’ a Viable Defense to Insider Trading Charges Against Hedge Fund Managers Post-Galleon?,” Hedge Fund Law Report, Vol. 4, No. 45 (Dec. 15, 2011).  Our interview with Streeter covered, among other things: how the government identifies targets for wiretaps; the communication channels covered by wiretaps (e.g., phones, e-mails); coordination between the DOJ and the FBI in sharing wiretap evidence; the extent to which the SEC can use wiretap evidence in its investigations and enforcement actions; the effectiveness of techniques used to challenge wiretaps; advice to personnel confronted with their wrongdoing and how to respond to government requests for cooperation; the value of cooperating with the government; the utility of a fund manager’s self-reporting of insider trading by an employee; how to handle government requests for information about insider trading by other hedge fund managers; the government’s view of the mosaic theory; how the government determines whether to make an insider trading investigation public; steps fund managers can take to avoid insider trading liability when talking with corporate executives or using expert networks; and the sources used by the government to identify potential insider trading targets.  The following is a complete transcript of our interview with Streeter.  This interview was conducted in connection with the Regulatory Compliance Association’s Compliance, Risk & Enforcement 2012 Symposium, which will take place on December 18, 2012 at the Pierre Hotel in New York.  Hedge Fund Law Report subscribers are eligible for a registration discount.

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