Tags: hedge fund | SEC | wrongdoing | insider trading

Hedge Fund Pros: Some of Us Work in a Den of Thieves

By John Morgan   |   Tuesday, 09 Apr 2013 07:45 AM

Nearly half of hedge fund professionals believe their competitors engage in crooked activity, and 35 percent have felt pressure to break the law or engage in unethical behavior themselves, according to a new industry survey.

The study, commissioned by the Hedge Fund Association, Hedgeworld and an industry law firm, found that 87 percent said they would report wrongdoing given the protections of the Securities and Exchange Commission (SEC)’s whistleblower program.

In all, 30 percent of the 127 hedge fund professionals polled said they had personally observed or had first-hand knowledge of wrongdoing the in the work.

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Among the survey’s other findings, 29 percent said it was likely they would be retaliated against if they reported workplace wrongdoing.

And 28 percent predicted that if executives at their firm learned a top performer had engaged in insider trading, the executives would be unlikely to report it.

More than half said that in their opinion, the SEC was ineffective in detecting, investigating and prosecuting insider trading violations.

"While wrongdoing in the hedge fund industry may not be as widespread as many outside the industry believe, it does occur, and people in the industry are aware of it," said Christopher Clair, managing editor at Hedgeworld.

"It's only when we eliminate the unfair advantages sought and exploited by some that true alpha can be found."

Laura Block, executive director of the Hedge Fund Association, said some of the findings were “troubling.”

But, she added, the survey “provides valuable insights that will help the industry to further strengthen its investor protection programs and root out any bad actors."

The Los Angeles Times noted the survey was conducted a few days after the SEC announced its largest insider trading settlement ever.

CR Intrinsic Investors, a unit of hedge fund giant SAC Capital Advisors, agreed to pay more than $600 million to settle the case, the Times reported.

George Canellos, the SEC’s acting director of enforcement, seemed to suggest in announcing the CR Intrinsic settlement, which did not contain an admission of wrongdoing, that the agency’s efforts might not cause lasting change on Wall Street, according to the Times.

“Insider trading has been a significant issue,” Canellos said. “It remains a significant issue, and it should remain a significant focus of our enforcement efforts.”

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