Law Firm’s IT Pro Charged with Insider Trading

The SEC has charged a law firm’s IT manager with insider trading with respect to material nonpublic information about law firm clients engaged in M&A activity. The SEC alleges that the IT Manager, whose job included maintaining security and confidentiality of electronic files and information, utilized his position to obtain material information and trade ahead of public disclosure involving 22 announcements and 20 companies. The IT Manager violated the law firm’s policies prohibiting the use of material non-public information as well as the firm’s preclearance procedures. The SEC argues that the defendant had a fiduciary duty to his employer who had a fiduciary duty to its clients.

OUR TAKE: It appears that because the law firm had policies and procedures to prevent insider trading, the law firm will escape prosecution for failing to prevent the insider trading. This case is also a reminder that everybody in a firm must comply with applicable policies and procedures.

http://www.sec.gov/litigation/complaints/2010/comp21765.pdf