Trader Charged with Front-Running His Firm’s Fund Trades
The SEC has charged the trader at an asset management firm with front-running client trades and unlawfully collecting $3.6 Million in profits over 6 years.
The SEC alleges that the trader used brokerage accounts in the names of relatives to place trades during and after large trades in the same securities by his firm for the benefit of the firm’s funds. The SEC contends that the trader had access to material nonpublic information about the firm’s trading and used his access to trade ahead of firm clients on over 600 occasions. The SEC details how the trader bought and sold quickly within a trading day to benefit from the short-term market impact of the firm’s orders. The SEC accuses the trader of violating his fiduciary duty, engaging in a scheme to defraud, and disregarding his firm’s code of ethics. The defendant also faces criminal charges.
Since the SEC adopted the code of ethics rule that prohibits front-running and requires the reporting of personal securities transactions, it has not brought many front-running cases, suggesting that the rule had its intended impact. Yet, miscreants still try to evade the securities laws. One interesting open question is whether this trader’s firm (not named) will avoid criticism for allowing this unlawful conduct or whether its program was reasonably designed and implemented.
Read complaint here.