Many hedge fund managers and other buy-side firms use political intelligence (PI) to inform their trading decisions, but use of PI is not without risk, particularly the risk that misuse of that information could lead to an insider trading charge. See “Former Federal Prosecutors Share Perspectives on Insider Trading Hot-Button Issues and Enforcement Trends Relevant to Hedge Fund Managers
,” Hedge Fund Law Report, Vol. 5, No. 39 (Oct. 11, 2012). In that regard, the Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act), enacted last year, clarified a gray area that had existed in insider trading jurisprudence – making clear that the insider trading prohibitions contained in the federal securities laws apply with respect to PI. Consequently, a hedge fund that trades on material nonpublic information provided by a member of Congress or a congressional staffer is explicitly exposed to insider trading liability. See “Political Intelligence Firms and the STOCK Act: How Hedge Fund Managers Can Avoid Potential Pitfalls
,” Hedge Fund Law Report, Vol. 5, No. 14 (Apr. 5, 2012). Yet, much uncertainty remains, including understanding the boundaries of what constitutes PI as well as determining the circumstances under which PI constitutes material nonpublic information. To shed light on these issues for hedge fund managers, a recent panel, which included an official from the SEC’s Division of Enforcement, discussed the contours of and the impact of the STOCK Act. This article summarizes the key lessons from the panel discussion.