U.S. Attorney Says that Insider Trading is "Rampant" and Wire Taps are the "Best Evidence"
Get ready for more insider trading arrests in the not-too-distant future. That was the message of U.S. Attorney Preet Bharara's speech on Wednesday, October 20 at the New York City Bar Association. Bharara, the U.S. Attorney for the Southern District of New York responsible for enforcing federal criminal laws in Manhattan, made headlines last year for the historic Galleon hedge fund insider trading take-down.
In his speech at the City Bar, Bharara called insider trading a "rampant" problem that "may even be on the rise." He compared the use of material, non-public information to "a form of financial steroid" because it provides an illegal "edge" that allows traders to outpace their rivals.
In a critical warning for financial services companies, Bharara stressed the urgency to ramp up criminal enforcements targeting both individuals and corporations. Bharara addressed the perception that businesses are rarely charged with insider trading and immune from prosecution, saying that criminal charges for businesses are "absolutely on the table" during each investigation. He noted that, as part of the standard charging process, he routinely asks his assistant U.S. attorneys whether they have considered charging the corporation, and that he expects "a rigorous answer" to this inquiry.
Bharara specifically addressed the FBI's and federal prosecutors' use of wire taps to investigate insider trading. He rejected the notion that prosecutors were being overly aggressive in using this technique and pledged that law enforcement "will not shrink" from using wire taps. "Every legitimate tool should be at our disposal. Especially where, as in the case of insider trading, an essential element of the crime is a communication, it does not take a rocket scientist to understand that it would be helpful to have the actual recording of the communication," Bharara said.
Bharara also strongly hinted that new prosecutions are coming down the pike. Bharara stated that insider trading "will become a bigger issue in the future" and said that "[t]here is more deterrence to be achieved." Combined with rumors in the white collar community about a large insider trading case currently being worked on by the U.S. Attorney's Office, Bharara's remarks indicate that a headline generating insider trading take-down is imminent.
What This Means to You
Bharara's message makes it clear that financial services companies are not immune from prosecution for insider trading. Companies should reexamine and reinvigorate their insider trading policies and compliance procedures. Companies that fail to take seriously their obligations to police their employees, and ensure that the company is not benefiting from insider trading, run the risk of being charged with crimes despite the existence of corporate policies prohibiting insider trading.
Moreover, companies should have plans in place to respond to law enforcement inquiries, both to protect the company and its employees from surprise law enforcement visits and questioning, and to respond quickly and efficiently to government subpoenas. By considering these issues in advance, your company can protect itself better by providing information in a controlled manner while being viewed by law enforcement as a good corporate citizen.