The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

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By Topic: Data Security

  • From Vol. 9 No.29 (Jul. 21, 2016)

    Procedures for Hedge Fund Managers to Safeguard Trade Secrets From Rogue Employees  

    In an era when high-profile data theft cases have shaken some people’s faith in the security of personal information entrusted to fund managers, it is critically important for firms to take steps to detect, prevent and address such thefts by rogue employees. This is of particular urgency for hedge fund managers now that the SEC has stepped up its focus on cybersecurity. See “Growing SEC Enforcement of Hedge Fund Managers Requires Greater Focus on Cybersecurity and Financial Disclosure” (Jul. 7, 2016). Data security and the measures that can help safeguard trade secrets and sensitive information were the focus of a recent Hedge Fund Association (HFA) panel discussion. The participants were Mark Sidoti, director of the business and commercial litigation department and chair of the e-discovery task force at Gibbons; Paul Neale, chief executive officer of DOAR, Inc.; and Lisa Roitman, general counsel of Litespeed Partners. This article highlights the most salient points for hedge fund managers raised by the panel. For additional insight from the HFA, see “HFA Symposium Offers Perspectives From Cybersecurity Industry Professionals on Preparedness, Vendor Management, Cyber Insurance and Cloud Services” (Jul. 7, 2016); and our two-part series on the recent Global Regulatory Briefing, offering insight from U.S., U.K. and offshore regulators: “Best Ways for Hedge Fund Managers to Approach Regulation” (May 12, 2016); and “Views on Cybersecurity, AML, AIFMD, Advertising and Liquidity Issues Affecting Hedge Fund Managers” (May 19, 2016).

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  • From Vol. 7 No.13 (Apr. 4, 2014)

    How Can Hedge Fund Managers Reconcile Effective Monitoring of Electronic Communications with Employees’ Privacy Rights? (Part One of Three)

    Information is the raw material out of which hedge fund managers fashion their finished products – compelling investment ideas and, one hopes, absolute returns.  As such, managers and their personnel are continuously engaged in collecting, refining and transmitting information, that is, communicating.  Today, the vast majority of such communications occur electronically – via e-mail, chat, text, social media and similar channels.  From an investment perspective, this increases opportunities but at the same time competition.  From a compliance perspective, the proliferation of electronic communications has dramatically expanded the range of opportunities for legal and regulatory violations.  Hedge fund managers are not unique among businesses in contending with the compliance challenges raised by electronic communications, but many of the specific compliance challenges faced by hedge fund managers are industry-specific.  Accordingly, The Hedge Fund Law Report is undertaking a three-part series intended to identify the specific compliance challenges for hedge fund managers raised by electronic communications and to outline best practices for surmounting those challenges.  This article – the first in the series – catalogues six reasons why hedge fund managers need to monitor electronic communications of employees and highlights two settings in which procedures other than electronic communication monitoring are most effective.  Subsequent articles in the series will discuss the sources of employees’ privacy rights, factors bearing on the reasonableness of an employee’s expectation of privacy, the benefits and limits of specific policies regarding electronic communication monitoring and best practices in this area.  See also “Key Elements of Electronic Communications Policies and Procedures for Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 3, No. 44 (Nov. 12, 2010).

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  • From Vol. 4 No.22 (Jul. 1, 2011)

    What Hedge Fund Managers Need to Know About Information and Data Security

    While hedge fund executives are experts at identifying and managing the risks relating to their financial assets and portfolios, they generally do not have the time or expertise to focus on the security of their people and intellectual property assets.  However, all organizations – especially financial institutions – must be prepared for the inherent risks and responsibilities associated with doing business in an online world through a sound digital risk management strategy.  The appropriate approach to digital risk management varies from firm to firm based on unique business models and requirements.  However, all hedge fund managers should take a risk-based approach to security and ensure that the approach is aligned with the way executives manage other business issues.  While physical security and information security present different challenges, they are strongly related, are part of internal controls and should be managed using an integrated strategy.  In a guest article, Edward Stroz, Co-President of Stroz Friedberg, a digital risk management and investigations firm, and Steven Garfinkel, Vice President of Stroz Friedberg’s Business Intelligence & Investigations Division – and both former FBI Special Agents – outline the most critical aspects involved in implementing a digital risk management program for hedge fund managers.

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