Former Securities and Exchange Commission (SEC) Chairman Harvey Pitt said that regulators’ upcoming insider-trading cases expected to be filed soon are clear cases of abuse—and don’t reflect a shift upward in regulatory action.
“In this particular case, this is a combination of factors,” said Pitt, who is now the CEO and founder of Kalorama Partners, which specializes in corporate governance, and risk and crisis management. Pitt was SEC chairman between 2001 and 2003.
According to a news report Saturday, prosecutors and securities regulators are likely to file a number of cases targeting the $1.7 trillion hedge-fund industry rather than a single large case.
“There are deals that are now coming into play, that have been coming into play before the crash and so on, and the market activity suggests that there has been unlawful trading activity. And I think this is an effort by the regulators to show that they’re on top of the issue, and they’re going after anyone who engages in that conduct,” Pitt said.
He said he didn’t believe the regulators would go after any insider trading cases that lie in the “gray area,” because they would likely lose their cases against the firms. He said it's significant that regulators have joined forces to pursue the cases.
The former SEC chair said firms do understand the rules of insider trader, but need to reminded of them.
Pitt made a distinction between “inside” information used by investors versus that used by a member of the press.
“If what you’re getting is available through due diligence and intelligence, it’s usable,” he said. “If what you’re getting that reflects somebody parting with a secret that was supposed to be kept confidential, you have obligations not to divulge that—although you can report it in the press.”