SEC Opens Insider Trading Probe into Alleged Front-Running
The New York Times ran a front page story this week revealing that the SEC has begun a broad examination into whether Wall Street bank employees are providing tips about big trades to favored clients, such as hedge funds, in an effort to gain favor with those clients.
According to the article, the SEC sent out letters in mid-January to the major Wall Street banks, including Merrill Lynch, Morgan Stanley and Deutsche Bank. Although the SEC confirmed the existence of the investigation, it declined to comment further.
Front-running has long been an issue on Wall Street. Large mutual funds have often complained that Wall Street brokerage firms were front-running their trades, using information about the funds’ plans to make a risk-free profit on the stock. However, rather than examining whether banks are trading ahead of their own clients, the latest SEC investigation appears to be focusing on whether banks are tipping their customers who then complete trades at other banks, making the paper trail harder to detect.
