As companies hunker down for what the SEC promises will be a much tougher enforcement environment, corporate defense lawyers are rushing to keep their clients ahead of the curve.
Over at Mayer Brown, the prediction is that insider trading cases will be at the top of the Enforcement Division’s agenda.
“They’re going to pick that old tool up—insider trading—and they’re going to use that as a weapon,” said Sean Casey, a partner in Mayer Brown’s New York office and co-leader of the firm’s securities enforcement and investigations group, during a teleconference today with corporate clients and other financial services companies.
Insider trading cases, said Casey, involve “a very simple, straight-forward set of elements,” which makes them easier to prosecute. The crises plaguing the credit and securities markets, on the other hand, involve complex investigative theories and are nearly impossible to explain to a jury, he said.
Prior to joining Mayer Brown this year, Casey was deputy chief of the business and securities fraud unit in the U.S. Attorney’s Office in the Eastern District of New York. Presumably drawing from his past experience on the other side of the table, Casey explained what he said was a likely prosecution strategy.
“As a prosecutor, you start thinking about your opening statement,” he said. “You want to make it simple. …You want to get up before 12 people and say, ‘this is a case about greed,’ or you want to get up and say, ‘this is a case about theft.’” Insider trading cases, he said, allow you to do that.
Casey pointed to a case brought by the SEC last month as evidence that it’s getting more aggressive with insider trading allegations. The agency brought charges May 5 against a former hedge fund manager and a bond salesman for insider trading in credit default swaps. It is the first insider trading action to involve credit default swaps, which do not fall into the traditional definition of securities. The action, said Casey, shows that the SEC is “reaching a little bit.”
Of course, the agency itself is currently the target of an embarrassing probe into possible insider trading by two of its own lawyers.
Bruce Bettigole, a partner in Mayer Brown’s D.C. office, also participating in the teleconference, said it “may be of some value” for companies to pay attention to how the SEC handles that investigation. The steps that the SEC takes to prevent another probe into its own staff could indicate what the agency will look for in the compliance programs of other institutions, Bettigole explained.