The Hedge Fund Law Report

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

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By Topic: Wall Crossings

  • From Vol. 5 No.48 (Dec. 20, 2012)

    SEC Settles Insider Trading Action against Tiger Asia Management

    On December 12, 2012, the SEC charged Tiger Asia Management, LLC (Tiger Asia Management), Tiger Asia Partners, LLC (Tiger Partners) and their principal, Sung Kook (Bill) Hwang, with insider trading and market manipulation relating to their trading in the shares of Bank of China, China Construction Bank and other Chinese companies.  The same day, Tiger Asia Management, Tiger Partners and Hwang agreed to pay $44 million in the aggregate to settle the charges.  This article summarizes the underlying misconduct, the settlement terms and the SEC’s charges.  See generally “Structuring, Regulatory and Tax Guidance for Asia-Based Hedge Fund Managers Seeking to Raise Capital from U.S. Investors (Part Two of Two),” The Hedge Fund Law Report, Vol. 5, No. 32 (Aug. 16, 2012).  Tiger Asia Management faces parallel criminal charges brought by the U.S. Attorney’s Office for the District of New Jersey.  For the details of an action brought by Hong Kong securities regulators against Hwang and Tiger Asia Management arising out of the same alleged insider trading, see “Hong Kong Securities and Futures Commission Wins Appeal of Insider Trading Action Against New York-Based Hedge Fund Manager Tiger Asia Management,” The Hedge Fund Law Report, Vol. 5, No. 10 (Mar. 8, 2012).

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  • From Vol. 5 No.5 (Feb. 2, 2012)

    FSA Imposes £7.2 Million Penalty on Hedge Fund Manager David Einhorn and Greenlight Capital for Unintentional Insider Dealing in Shares of British Pub Owner Punch Taverns Plc

    The UK Financial Services Authority (FSA) has concluded that hedge fund founder David Einhorn and his Greenlight Capital Inc. (Greenlight) engaged in impermissible “insider dealing” when they sold shares of British pub owner Punch Taverns Plc (Punch) immediately following a conference call with Punch management.  The FSA concluded that, even though Einhorn had refused to sign a nondisclosure agreement before the call and believed that he had not received inside information, Einhorn should have refrained from trading in Punch shares because he should have understood that he had received inside information about the terms and timing of a proposed equity issuance by Punch.  We summarize the FSA’s conclusions and the rationale for its actions.  See generally “Use by Hedge Fund Managers of Restricted Lists, Watch Lists and Ethical Walls to Prevent Insider Trading Violations,” The Hedge Fund Law Report, Vol. 4, No. 37 (Oct. 21, 2011).

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  • From Vol. 4 No.37 (Oct. 21, 2011)

    Use by Hedge Fund Managers of Restricted Lists, Watch Lists and Ethical Walls to Prevent Insider Trading Violations

    Information management is at the core of the hedge fund business.  If managed properly, information can generate outsized returns.  If managed improperly, information can lead to insider trading and other securities law charges, and criminal liability.  Hedge fund managers, accordingly, work hard to compile mosaics of information that can serve as the basis of legal trading, and that do not include material nonpublic information (MNPI).  See “Investment Research and Insider Trading on ‘Outside Information’,” The Hedge Fund Law Report, Vol. 4, No. 29 (Aug. 25, 2011).  In doing so, one of the more popular and potent tools is the restricted list.  A close cousin of the restricted list is the watch list, and a related technique is the ethical wall.  This article provides a guide for hedge fund managers in creating, disseminating, updating and enforcing a restricted list.  In particular, the article discusses: the definition of a restricted list; the legal, regulatory and practical sources of the obligation to maintain a restricted list; relevant issues raised by the simultaneous management of hedge funds that invest in public and private securities; when a name should be added to and removed from a restricted list; whether subsidiaries, affiliates and various parts of the capital structure should be included in a restricted list; access to and dissemination and updating of a restricted list; two SEC enforcement actions highlighting compliance concerns that may motivate the SEC to bring an action against a hedge fund manager in this context; and eight techniques for enforcement of a restricted list.  The article also provides a chart of six fact patterns in which names may be added to a restricted list, listing, for each, the event that may require addition to the restricted list and the event that may justify removal.  In addition, the article contains a detailed discussion of “wall crossing” scenarios in the hedge fund context and concludes with a discussion of what watch lists are and how they are used by hedge fund managers.

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