The SEC charged a current and a former government employee and two hedge fund analysts with insider trading violations. In the complaint, filed in the Southern District of New York, the SEC alleged that a current employee at the Centers for Medicare and Medicaid Services ("CMS") had relayed to a former CMS colleague confidential information about plans to cut Medicare reimbursement rates. The consultant, now working in a firm that provides "political intelligence" (quotation marks are also in the SEC complaint), allegedly communicated this nonpublic information to two hedge fund analysts who traded on the information, generating over $3.9 million in profits.
The SEC charged all four individuals with violating Exchange Act Section 10(b), Rule 10b-5, and Securities Act Section 17(a).
Commentary / Nihal Patel
While the headline in the story may relate to the fact that the inside information came from a governmental employee, for financial market participants, the case is a good reminder of the appropriate precautions that should be taken when interacting with persons who may have insider information. In many ways, the "political intelligence" services provided by the consulting firm are simply another name for the services provided by "expert networks" that have previously garnered the SEC's attention. See, e.g., Expert Networks and Insider-Trading Probes: Best Practices in Fostering Compliance and Reducing Legal Risks (Cadwalader C&F Memorandum, December 21, 2010).
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