This is the second article in a two-part series detailing the application of abstract insider trading principles to specific scenarios and challenges faced by hedge fund managers.  This article discusses the misappropriation theory of insider trading; recent caselaw on the element of scienter; channel checking and field research; insider trading issues raised when fund investors are affiliated with portfolio companies; special insider trading rules that apply to tender offers; and criminal and civil penalties for insider trading.  The first article in this series discussed the definition of nonpublic information; the scope of the concept of materiality; the limits of the concept of fiduciary duty as it relates to insider trading; and the mosaic theory of insider trading.  See “How Can Hedge Fund Managers Apply the Law of Insider Trading to Address Hedge Fund Industry-Specific Insider Trading Risks? (Part One of Two),” Hedge Fund Law Report, Vol. 6, No. 31 (Aug. 7, 2013).  The author of this article series is Ralph Siciliano, head of the Governmental and Regulatory Investigations Practice at Tannenbaum Helpern Syracuse & Hirschtritt LLP.