Client Alert
| August 30, 2010
Hedge Fund Lending Practices May Draw Increased Government Scrutiny into Insider Trading Compliance
New research may spark increased SEC attention into potential insider trading violations at hedge funds. In a paper to be published in the Journal of Financial Economics, four academics found that insider trading appears to occur with much greater frequency in connection with syndicated lending by hedge funds than by commercial banks. Specifically, the authors found "evidence consistent with the shortselling of the equity of the hedge fund borrowers prior to public announcements of both loan originations and loan amendments." The authors also found that stock prices frequently drop after the announcement of new hedge fund loans whereas the market frequently reacts positively to new bank loan announcements.
For more information, please contact your Dewey & LeBoeuf relationship partner, or one of the following:
This memorandum is intended only as a general discussion of these issues. It is not considered to be legal advice. We would be pleased to provide additional details or advice about specific situations. For additional information on this important topic, please feel free to call upon your Dewey & LeBoeuf relationship partner. No part of this publication may be reproduced, in whole or in part, in any form, without our prior written consent.
For further information on Dewey & LeBoeuf, please visit www.dl.com. +1 888 532 6383