The Securities and Exchange Commission has put credit-derivatives traders on notice as it expands its spectrum of investigations, according to The Wall Street Journal.
The agency filed its first insider-trading case related to credit-default swaps on Tuesday, indicating that the agency will be policing areas it normally didn’t focus on. Overall, the agency is pursuing 150 cases that involve hedge funds.
The SEC is moving out from public stock and accounting frauds to encompass credit markets and investment funds. Of the 150 cases launched, the following are included: how hedge funds value securities, fund managers’ conflicts of interest, due-diligence failures, market manipulation, and insider trading.
Bruce Karpati, SEC assistant regional director, is leading the movement. He heads the agency’s Hedge Fund Working Group. “We need to be policing even the most complex markets to ensure that all investors, regardless of their supposed-sophistication, have a fair shake,” Karpati told WSJ. “We have to be every bit as sophisticated.”
As companies struggle to pay their debts, there are growing concerns that traders can profit form inside information about potential bankruptcies or debt restructurings. The SEC, which has always maintained it has authority to enforce fraud involving derivatives, will make efforts to thwart such abuses.