More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
An insider-trading probe involving the U.S. House Ways and Means Committee and a top staff member also includes dozens of hedge funds, investment advisors and other firms, the U.S. Securities and Exchange Commission said in a court filing.
In arguing against the House’s motion to dismiss the case or send it to a court in Washington, the SEC told a Manhattan federal judge July 16 that the geographic scope of its investigation is “much wider” than described by lawyers for the House and involves a total of 44 entities.
The probe concerns some of the largest hedge funds and asset-management advisers in the U.S., the SEC said. Twenty-five of the 44 are based in New York, it said.
The agency subpoenaed the House committee and the staff member, Brian Sutter, for its inquiry into whether non-public information was illegally passed about a change in health-care policy that resulted in a spike in share prices of insurance companies. The case is testing whether U.S. insider-trading laws allow regulators to investigate the committee or its staff.
According to the regulators, minutes before the government announced the policy change, an analyst at Height Securities LLC sent clients a flash report outlining the proposal. Sutter may have been a source used by a lobbyist at Greenberg Traurig LLP who disclosed the health policy changes to the Height Securities analyst, the SEC said.
The government announced an increase, rather than decrease, in payments to health insurers, boosting the shares of companies including Humana Inc.
“The Humana investigation is substantially concerned with the investor clients of Height Securities who received the subject Height e-mail, and who the commission believes may have engaged in relevant trading,” the SEC said in a filing to U.S. District Judge Paul Gardephe. It didn’t name the investors.
Sanjay Wadhwa, senior associate director of the SEC’s New York regional office, said in a memo to the court that 25 of the firms the agency is looking at have headquarters in New York, while the rest are based predominantly in Connecticut, Massachusetts, Illinois and California. One is in Washington. The probe is being handled by SEC lawyers in New York, he said.
The SEC cited a law Congress passed in 2012 that requires public officials to keep confidential non-public information about government matters that could move stock prices.
The House and Sutter are fighting the subpoenas. Their lawyers argued in a July 4 filing that staff members are “absolutely immune” from having to comply with subpoenas from a federal regulator in an insider-trading probe.
Kerry W. Kircher, the top lawyer for the House, said the information the SEC is seeking concerns legislative activities protected by the Constitution, which can’t be reviewed by federal judges. If Gardephe won’t dismiss the case, it should be moved to federal court in Washington, Kircher said.
The case is SEC v. The Committee on Ways and Means of The U.S. House of Representatives and Brian Sutter. 14-mc-00193. U.S. District Court, Southern District of New York (Manhattan).
Check out SEC Enforcement: Golf Buddies Charged in Insider Trading Ring on ThinkAdvisor.