One other interesting thing coming out of last Friday’s enforcement discussion at SEC Speaks (there weren’t many): Market Abuse Unit co-chief Rob Cohen’s mention of the SEC’s Analysis and Detection Center.
First, though, a brief rundown on how the SEC has traditionally started insider trading cases. In short, they tend to come from outside reports (whistleblowers or Suspicious Activity Reports) or FINRA or other self-regulatory organizations such as the Chicago Board Options Exchange. Historically, these are the places with their fingers on the electronic pulse of the securities markets. Maybe that’s too melodramatic. These are the places with all the data. There. That’s better. When, say, a corporate merger, FDA drug approval, or patent approval happens, FINRA can look at the trading in that issuer for several weeks before the event and see who was trading before the news was made public. If something seems amiss, after a brief investigation a referral is sent to the SEC. The SEC can certainly get this data on its own, but the process is extremely cumbersome. FINRA’s data, and the CBOE’s for options cases, is much better.
Enter the Analysis and Detection Center. I have a friend whose job requires him to think about insider trading for, oh, probably more than half of every day. When the SEC filed its first case referring to the Analysis and Detection Center, he emailed me asking something like, “There is one?” We both wondered what it was. So did Bruce Carton. It turns out the SEC is using it, whatever it is, to generate its own insider trading cases, without relying on FINRA or CBOE or any ol’ whistleblower.
And, Cohen said last Friday, the Market Abuse Unit has filed five insider trading cases generated from the Center over the last year. This is noteworthy. Here is one of the cases, and here is another one. Lexis doesn’t tell me about the other two. But what I want to know is, what data do they have? Where are they getting it? How are they using it? Would they have been able to do these cases without the Center? Because SEC Speaks is uniquely designed not to answer questions like these, we don’t know. Maybe Cohen will show up at Securities Enforcement Forum 2016 and we’ll find out.