A new survey indicates that about a third of all hedge fund workers in the U.S. have “personally observed” regulatory laws being broken within the industry. The survey was confidential, and it was conducted by law firm Labaton Sucharow, the Hedge Fund Association and HedgeWorld.
The survey sheds new light on the recent allegations brought by regulators against workers at SAC Capital Advisors, which still managed to post a 4 percent gain over the year in spite of the ongoing federal investigation into its practices. Michael Steinberg, a long-time portfolio manager at the firm, was the latest employee to be arrested. He now faces five counts of insider trading charges, which could lead to a 20-year prison sentence.
There is a straightforward tool available to any investor who wants to improve their process. Q1 2021 hedge fund letters, conferences and more This tool is very easy to put together. There's no need to subscribe to any . . . SORRY! This content is exclusively for paying members. SIGN UP HERE If you are Read More
The survey also found that 35 percent of hedge fund workers said they felt like their compensation plan pressured them into breaking the law or acting unethically. Twenty-five percent also said there were other pressures in the workplace that also could lead to law-breaking or unethical conduct.
About 13 percent of those who took the survey said they felt like they might need to do some illegal or unethical things in order to be successful. The same number also said if they could earn $10 million guaranteed if they performed insider trades, then they would do it if they could get away with it.
In addition, the survey found that almost half of all hedge fund employees (46 percent) actually believe their competitors are the ones breaking the rules. About 28 percent believed that if one of their firm’s top performers had engaged in insider trading and their leaders found out about it, they would probably not report it. In fact, 13 percent said they believed their firm’s leaders might even ignore the problem entirely.
About 29 percent also believed that if they were to report insider trading at their firm, they would be retaliated against. However, a large majority (87 percent) said they felt like the Security and Exchange Commission’s new Whistle-blower Program will provide the encouragement needed to tell regulators about wrongdoing in the future. The program protects the jobs of whistle-blowers and also offers them monetary rewards and enables them to tip off regulators anonymously. Congress even set up an Investor Protection Fund that currently has a $450 million balance to ensure that whistle-blowers are compensated.