Latest Insider Trading Case Highlights Need for Training

Last week’s indictment by federal prosecutors of an Ernst & Young partner for “tipping” in an insider trading scheme highlights the need for training of hedge fund employees about a very critical, but often over-looked, component of these cases — namely, that a person can be subject to criminal charges for “tipping” regardless of whether he or she actually made any money from the tip or ever even traded any shares in the scheme.

In this indictment, a former partner at Ernst & Young was indicted for “tipping” a friend about pending acquisition targets (by Blackstone and Siemens, clients of E + Y). The friend made all the money and the E+Y partner never traded any shares for his own account. And yet he was indicted in the scheme.

Insider trading is a complicated area of the law, and training of hedge fund employees at all levels should be given periodically. And, employees should understand that merely passing along a tip is enough to get them into trouble, as this latest case so clearly illustrates.

See the complete SEC release regarding this case at: http://www.sec.gov/news/press/2008/2008-101.htm