Hedge Fund Compliance Riddle
Q: If hedge fund compliance professionals could roll back time and make one form of technology disappear, what would it be?
A: Clearly, without question, hands down: email (and its cousin, instant messages)
No matter how many warnings and explanations are given, the spate of wacky, stupid and worst of all, self-implicating, emails and IM’s by hedge fund employees just doesn’t lighten up.
Exhibit A this month is the newly-reopened Pequot inside trading probe. This SEC investigation relates to possible insider trading of Microsoft shares by Pequot Capital Management utilizing information gleaned from a Microsoft employee. The investigation appears to be centering on previously undisclosed personal account emails from a Pequot employee to a Microsoft contact in which the Pequot employees allegedly writes this completely unguarded message under the heading “missing earnings rumor“:
“Do you believe this? Should I sell my shares today or wait until after earnings come out?…”
If there is one take-away message here, it is that personal account emails can be subject to discovery or investigation by regulators, just as an employee’s work email account can be. Hedge fund employees need to understand that and compliance personnel should be ready to educate them specifically on this point.