A confluence of factors – including Galleon; Madoff, and in particular the SEC’s failure to catch the Ponzi scheme earlier; other discovered frauds; the credit crisis; etc. – have enhanced scrutiny by regulators of actions at hedge fund managers that may constitute insider trading.  See “Another Hedge Fund Manager, Former Jefferies Group Manager Joseph Contorinis, Indicted for Insider Trading,” Hedge Fund Law Report, Vol. 2, No. 46 (Nov. 19, 2009); “For Hedge Funds and Their Managers, the SEC’s New Enforcement Initiatives May Increase the Likelihood, Speed and Vigor of Inspections and Examinations,” Hedge Fund Law Report, Vol. 2, No. 33 (Aug. 19, 2009); “What Can Hedge Fund Managers Learn From the SEC’s Failure to Catch Madoff? An Interview with Charles Lundelius, Senior Managing Director at FTI Consulting, Inc.,” Hedge Fund Law Report, Vol. 2, No. 40 (Oct. 7, 2009).  In light of this increased regulatory scrutiny, many hedge fund managers are reviewing their policies, practices and procedures with respect to insider trading.  For any hedge fund manager, whether registered or unregistered, it is critical to have an insider trading policy that is comprehensive, legally accurate, practicable and effective.  See “Key Elements of a Hedge Fund Manager’s Insider Trading Policies and Procedures,” Hedge Fund Law Report, Vol. 2, No. 43 (Oct. 29, 2009).  Beyond having a best-of-breed insider trading policy, though, hedge fund management firms also have to think about how they would respond to suspicion or discovery of insider trading by an employee or principal of the manager.  Within hedge fund management firms, the general counsel (GC) and chief compliance officer (CCO) are on the front lines of investigation, discovery and response.  Accordingly, this article offers guidance and a review of best practices with respect to what a hedge fund manager GC or CCO should do in the event of suspicion or discovery of insider trading.  Specifically, the article discusses: the corporate charging guidelines of the Department of Justice (DOJ); internal investigations; the advisability of suspending suspected violators; how and when to preserve the record; what to do in the event of an actual discovery of insider trading; and how to prepare for surprise government interviews.