Insider trading has long been an SEC enforcement priority. While the Manhattan U.S. Attorney has brought the headline grabbing cases, the SEC has been equally aggressive in a series of actions which may redefine the insider trading (here). This has been a strength of the retooled SEC enforcement program.

Once again however the past may be returning to tarnish the future. Fresh from testimony before law makers about the alleged Stanford Ponzi scheme (here), the Commission now has an inquiry about how it handled FINRA “suspicious trading” referrals. Specifically, Senator Charles Grassley, in a May 24, 2011 letter to SEC Chairman Mary Schapiro, is asking the Commission to explain how it has handled possible insider trading inquiries about SAC Capital referred by FINRA beginning as early as January 1, 2000. The letter goes on to request that the Commission explain: “(1) how the SEC resolved each of these referrals, (2) how the number of referrals over this timeframe compares to similarly situated firms, (3) whether a Wells Notice was ever drafted with regard to SAC Capital related to any of these referrals or related to any other matter (if so, please provide a copy of any Draft or Final Wells Notice).” The letter attaches a list of the referrals.

Previously, the Senator requested and obtained information from FINRA about referrals relating to possible insider trading by SAC Capital. According to the Wall Street Journal FINRA turned over the details regarding about 20 instances when it found trading by the hedge fund to be suspicious.

FINRA of course routinely monitors the markets and makes referrals of suspicious trading to the SEC. Suspicious trading is just that. It is not insider trading. At the same time Bloomberg reports that the Manhattan U.S. Attorney is investigating accounts at SAC Capital tied to Noah Freeman and Donald Longueuil, former portfolio managers who pleaded guilty to insider trading charges.

Senator Grassley’s interest in insider trading dates to at least 2006 when he was critical of the SEC in the Pequot Capital Management debacle (here). Three years after Senator Grassley called on the SEC to reopen its investigation of the hedge fund, Pequot and its owner settled insider trading charges with the Commission (here).

On June 7 when the response is sent by the Commission to Senator Grassley it will detail how the FINRA referrals were handled and resolved. That response may suggest whether the enforcement program is going to continue moving forward or stay mired in the past (here).