The Securities and Exchange Commission’s (SEC) enforcement division is stepping up surveillance of insider trading with its newly instituted Automated Bluesheet Analysis Project, and is catching more hedge fund advisor fraud with its aberrational performance inquiry team, according to SEC Chairwoman Mary Schapiro.
During a recent speech, Schapiro said that the agency’s automated bluesheet project has added “yet another dimension” to the agency’s investigative capabilities, with enforcement staff using the “newly developed analytics to identify suspicious trading patterns and relationships among multiple traders and across multiple securities, generating significant enforcement leads and investigative entry points.”
Schapiro cited a notable case filed against Matthew Kluger and Garrett Bauer, who she said illegally traded for illicit profits totaling nearly $32 million. She said the two “ran a lucrative insider trading scheme spanning two decades, with Kluger and Bauer successfully hiding their scheme for years by communicating through a middleman using public telephones and prepaid disposable mobile phones.”
While investigators were at first unaware either of Bauer or the middleman’s relationship with Kluger, “parallel analysis of the bluesheet trading data led us to identify the middleman and uncovered Bauer’s relationship with him. The parallel trading gave away the nature of their relationship, despite their efforts, and it informed our theory of the case.”
Thomas Sporkin, a partner with Buckley Sandler in Washington, said at the Securities Enforcement Forum in Washington last week that “greater granularity” in detecting insider trading will be available to the SEC once the consolidated audit trail becomes available online. The consolidated audit trail final rule was approved this summer but “will take at least a year” to implement. “The world will open up to the SEC regarding insider trading once this is in place,” Sporkin said.