As regulators continue focusing on insider trading, hedge fund managers must strive to improve their compliance policies and procedures to prevent employee misconduct. See “SEC Complaint Suggests the Agency Will Continue Aggressive Enforcement Actions for Insider-Trading Violations
” (May 11, 2017). To provide another perspective on insider trading, the Hedge Fund Law Report recently spoke with Tom Hardin, founder of Tipper X Advisors LLC. Known as “Tipper X,” Hardin was one of the most prolific informants in securities fraud history, assisting the U.S. government in numerous criminal insider trading cases as part of a DOJ cooperation agreement. As a convicted insider trader and informant, he has a unique perspective on insider trading, including how fund employees rationalize trading on material nonpublic information and how the private fund industry’s culture of compliance has evolved. This first article in our two-part series presents Hardin’s insights on how private fund compliance staff can prevent and detect insider trading activity, including best practices for training employees, ensuring prudent email use, preventing employees from rationalizing their insider trading, restructuring employee compensation to avoid incentivizing risky behavior and identifying insider trading activity. The second article
will analyze ways regulators combat insider trading activity, the impact of recent insider trading cases on the regulatory environment and the potential effect of the current administration’s anti-regulatory stance on insider trading. See “General Insider Trading Policies and Procedures May Be Insufficient for Hedge Fund Managers to Avert SEC Enforcement Action
” (Nov. 3, 2016); and our two-part coverage of the Seward & Kissel Private Funds Forum: “Mitigate Improper Dissemination of Sensitive Information
” (Sep. 22, 2016); and “Prevent Conflicts of Interest and Foster an Environment of Compliance to Reduce Whistleblowing and Avoid Insider Trading
” (Sep. 29, 2016).