U.S. officials have been snooping around and raiding the offices of certain hedge funds recently, and there seems to be a cultural connection between them all…

• Many of the hedge funds being investigated for insider trading were started by former traders for SAC (a private investment management firm).
• SAC allow its employees to trade small amounts of company money once they’re hired, and if they do well they’re given more power. If they don’t do well, they get the boot.
• This competitive culture creates a tension – SAC traders want to succeed professionally but don’t want to join Bernie Madoff in the clink for all eternity. Sometimes, the best intentions can land you there anyway.

Facts & Figures

• SAC employs 800 people, including 20 lawyers and other nitpickers charged with keeping things in line with regulation
• Level Global Investors LP and Diamondback Capital Management LLC, two hedge funds started by former SAC traders, were some of the first to be raided by federal agents
• Richard Choo-Beng Lee, another former SAC employee, pled guilty to insider trading last year

Best Quote

“That eat-what-you-kill culture is highly competitive. A set-up where you have traders running their own portfolios instead of feeding into a centralized investment may make it more tempting for them to cut corners.” – Craig Lilly, an attorney at Greenberg Traurig LLP

Tags: hedge funds, insider trading, regulation, SAC