A consultant to a private equity fund’s portfolio company has agreed to pay a fine and disgorgement to settle insider trading charges. According to the SEC, the consultant obtained impending acquisition information from the acquirer’s Chief Revenue Officer and traded on the information prior to the acquisition announcement. The SEC also alleges that she passed the information to a friend who also traded. The SEC asserts that the consultant “violated her fiduciary duties or similar obligations arising from a relationship of trust and confidence” to the client company.
OUR TAKE: Private equity firms registered as investment advisers should ensure that portfolio company officers and consultants comply with the Code of Ethics, including reporting of securities transactions and the obligation to maintain the confidentiality of material nonpublic information.