SEC heightens battle against "rampant" insider trading among Wall Street professionals, hedge funds, international rings

The SEC is stepping up its efforts to fight what a senior official called "rampant" insider trading among Wall Street professionals, and has formed a working group to focus on the crime. Peter Bresnan, the SEC's deputy director of enforcement, said the agency is seeing a trend in larger rings involving more people, international cases, as well as those involving securities professionals and hedge funds.Booming M&A markets have recently provided increasing opportunities for information sharing among bankers, traders, hedge fund managers and private equity executives both on Wall Street and internationally.

This year has already seen more insider trading cases in the U.S. than in the entire decade of the 1990s. But Linda Chatman Thomsen, the SEC's enforcement director, said the agency expects to see even more insider trading cases in the near future.

In the meantime, a new Banc of America Securities report today predicted M & A activity should remain strong until about 2010.

"I believe we're going to see more insider trading cases," Thomsen said, adding: "I am disappointed in the number of cases we are seeing by people who make an abundant livelihood in the market that they are sort of abusing by insider trading."

One of the technologies increasingly used by regulators such as the FSA and exchanges to detect insider trading, is complex event processing, or CEP, which allows them to monitor suspicious trades in real-time.

CEP uses analytic techniques such as event streams processing, event correlation and abstraction, to detect complex patterns among many events and relationships between events, such as causality and timing.

The FSA recently recently announced its use of Progress Apama's Event Processing Platform to monitor transactions and detect insider trading and other market abuses as they occur.

"The FSA has a portfolio of hundreds of scenarios that can be instances of abuse. Before they'd record the information and analyze it after the fact. But by the time you detect it, the market has long been moved by it," says Dr John Bates, founder and vice president, Progress Apama.

This year, the SEC brought insider trading charges against a husband and wife in Hong Kong for trades in Dow Jones & Co Inc shares ahead of News Corp's $5 billion takeover bid, Credit Suisse banker Hafiz Naseem for allegedly providing insider information to a broker in Pakistan, and employees at UBS, Morgan Stanley and Bear Stearns Cos.

The secretive hedge fund industry has also come under increasing scrutiny by the SEC, which recently sued a New York hedge fund for illegal trades, and has been probing executives across the industry for insider trading.

The agency recently sent out a 27-page letter to registered hedge fund advisers, asking them for information about relationships between managers, employees, family members and public companies. The agency also wants to examine the controls that advisers have in place to prevent insider trading. In the meantime, Thomsen said that in the coming months, she expects more SEC enforcement actions related to options backdating.The SEC is stepping up its efforts to fight what a senior official called "rampant" insider trading among Wall Street professionals, and has formed a working group to focus on the crime. The agency is seeing a trend in larger rings involving more people, international cases, as well as those involving securities professionals and hedge funds. Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio