The “new frontier of insider trading” involves non-equity based securities, Daniel M. Hawke, chief of the market abuse unit in the Securities and Exchange Commission's enforcement division, said.
Real-time electronic surveillance has improved the effectiveness of federal investigations into insider trading, he said.
Also on the panel were Samuel J. Draddy, head of the Financial Industry Regulatory Authority's insider trading surveillance unit, Larry P. Ellsworth, a partner at Jenner & Block LLP in Washington, Russell G. Ryan, a partner at King & Spalding LLP in Washington, and Donald C. Langevoort, a professor at Georgetown University Law Center.
Developments in real-time surveillance allow the agency to investigate cases without “surfacing” to the people being investigated. “The first time they learn there is an investigation is when agents are taking them into custody,” Hawke said.
Draddy said that FINRA also uses “highly sophisticated electronic surveillance system that tracks the markets” and sends the agency alerts on potential insider trading.
From there, regulators will “triage” the cases, he said, and many get forwarded to the SEC for further investigation.
Electronic means can “slice and dice” trading data and parse it, but ultimately human analysis is required to determine whether conduct is suspicious, Draddy said.
The broader data collection allows regulators to look at how particular traders have acted over time, Hawke said, rather than merely looking at individual transactions.
“In those close call cases,” he said, “our willingness to lose says much more about us than how many cases we win.”
It's “not a record I'm ashamed of,” he added.
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