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Large Advisory Firms Will Pay For Misconduct

When financial professionals are unethical, they will be made to pay, as evidenced by a recent settlement between Visium Asset Management and the U.S. Securities and Exchange Commission (SEC). In early May, the hedge fund was ordered to pay $10 million for insider trading.

When two of Visium’s traders were convicted of criminal charges, it sent the $8 billion firm spiraling and led to its ultimate downfall. The portfolio managers mismarked assets and traded stocks based on government insider tips. The final settlement also held Visium’s former chief financial officer liable for failing to supervise the traders.

Marc Berger, director of the SEC’s New York office, stated that, “Advisory firms must create a culture of zero tolerance when it comes to unlawful conduct and supervisors at those firms must take reasonable measures necessary to detect and prevent securities law-related violations.”

The Visium case is one of the first large-scale investigations involving insider-trading tips by the U.S. government to reach a conclusion. The SEC is showing it will take aggressive action for misconduct, regardless of the circumstances and parties involved. The fact that this case and a handful of others will establish a legal precedence is a big win for investors.

Who Gets Hurt By Insider Trading?

To some, insider trading may seem to be a victimless crime. However, when traders are not all trading on an even playing field – that is, with the same information – it sets only a few investors up for success. Everyone else will be hurt. While individual investors may not notice significant losses, on a larger scale, a group of investors in a certain stock will.

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