In the U.S., Judge Katharine Hayden sentenced former corporate lawyer Matthew Kluger to twelve years in prison—the longest term received to-date for insider trading violations. While working as a lawyer at prominent law firms (including Cravath, Skadden, and Wilson Sonsini), Kluger misappropriated nonpublic corporate merger information over the course of seventeen years. Notably, Kluger’s sentence reflecting Kluger’s abuse of his legal position was longer than the eleven years handed to Raj Rajaratnam in the widely publicized Galleon case.
Also last week, in Japan, the Securities and Exchange Surveillance Commission (“SESC”) proposed to fine a U.S. broker dealer $185,000, a penalty much higher than what the SESC has sought in other recent insider trading cases.
Only a few months ago, the U.K. FSA fined a U.S. based hedge fund $11 million for selling shares in a company shortly after receiving indications of a possible stock sale. This case is a reminder that professionals who obtain information through the exercise of their employment, profession, or duties should be particularly aware of whether they may be exposed to sensitive information along with its potential for liability.
China, too, may also become more active in cracking down on insider trading. Sources report the Chinese government may broaden the definition of an insider and focus on government officials as well as corporate executives.
In short, as financial transactions become increasingly globalized, it is clear that portfolio managers, traders, and compliance personnel need to be conversant in the legal and regulatory regimes of multiple jurisdictions. Requirements surrounding the use of nonpublic information are particularly relevant as acceptable standards of behavior evolve; expect more activity on this front.
