The SEC has sued a large hedge fund manager and its principal for insider trading and failure to file beneficial ownership reports. The SEC complaint alleges that the principal used his insider status as a significant shareholder of a public company to obtain material non-public information about an impending asset sale from a senior executive who expected him to keep the information confidential. Instead, according to the SEC, the respondents significantly increased their equity position and profited when the asset sale became public. The SEC also charges the respondents with failing to file required Section 16 and Section 13 beneficial holdings reports over 40 times with respect to 8 issuers.
OUR TAKE: Any hedge or private equity firm that takes a significant ownership position in portfolio companies must implement controls to ensure blackout periods around material, nonpublic events. Also, the SEC won’t accept any excuses for an investment firm that fails to implement policies and procedures to ensure timely filing of Section 16 and Section 13 beneficial holdings reports.