Bill Is A Specter Of Things To Come

A draft of a bill aimed at curbing insider trading is being seen as the latest attempt to regulate hedge funds.

A draft of a bill aimed at curbing insider trading is being seen as the latest attempt to regulate hedge funds. Sen. Arlen Specter (R-Penn.), who will relinquish his chairmanship of the Senate Judiciary Committee in the new year, has been circulating the measure, which among other things would require hedge funds to register with federal regulators if they accept pension money for investment. In addition, the pension investments would force hedge funds to develop and institute ethics codes and compliance programs, and give the U.S. attorney general the authority to reward private citizens for snitching on insider-trading violators – a reward that would amount to 30% of any penalty or fine. The Specter bill is intended to foster better cooperation between the Securities and Exchange Commission and the Department of Justice by allowing prosecutors to access information from the SEC when both agencies are running parallel investigations. According to Bloomberg News, which says it received a copy of the draft bill from a non-committee member, that the piece of legislation has not been introduced and, in any case, Congress would have only a few days to consider and pass a version of it. In other words, it appears more like Specter’s stated hope for the committee in the future. Specter, Barry Barbash, formerly of the SEC, told Bloomberg News, “has raised a lot of questions of regulators and this is a way of saying, ‘I want you to do a better job so here’s the arsenal.’” Barbash went on to say that this bill is “designed to be something of a legislative discussion piece.” While the purported aim of the bill is to prevent insider trading, it clearly was designed to do what the SEC couldn’t – adopt a hedge fund registration rule. The draft bill states: “Light regulation, secrecy, unregulated record keeping and limited compliance programs of hedge funds increase the difficulty of detecting and proving insider trading.” The draft cites “findings” that indicate the growing possibility of insider trading as hedge funds “increasingly are making loans, participating in private placements, and sitting on bankruptcy committees and corporate boards.” The SEC has reported that hedge funds were involved in 11% of all insider trading case filed in fiscal year 2006, and the agency expects that percentage to grow with more filings. A committee spokeswoman told Bloomberg News that there may be hearing on the issue Dec. 5.