Risk & Compliance

SEC Fines Research Firm $375K Over Compliance

Regulators say Marwood Group passed information that was "ripe for insider trading" to clients without vetting from its compliance department.
Matthew HellerNovember 30, 2015

Political research firm Marwood Group has agreed to pay $375,000 to settle charges that it failed to take sufficient steps to prevent misuse of nonpublic information obtained from government agencies.

Marwood provides hedge funds and other clients with regulatory updates and analysis about future government actions or rulemaking decisions. According to the U.S. Securities and Exchange Commission, “research notes” were distributed directly to clients in 2010, bypassing Marwood’s compliance department, and, as a result, were not properly vetted for “any material nonpublic information [MNPI] ripe for insider trading.”

The information, the SEC said in an administrative order, involved policy issues or pending regulatory approvals at the Centers for Medicare & Medicaid Services and the Food and Drug Administration.

“Government employees routinely possess and generate confidential market-moving information,” Andrew J. Ceresney, director of the SEC’s Enforcement Division, said in a news release. “When political intelligence firms like Marwood Group obtain information from government employees, they must take the necessary steps to prevent the dissemination of potentially material nonpublic information obtained in the course of their research.”

As the Wall Street Journal reports, the SEC has been investigating whether policy-research firms violated insider-trading rules by passing sensitive information about government policy to Wall Street clients.

“The settlement agreement with Marwood offers the first insights from the SEC about how its enforcement staff views the legal boundaries for an industry that hasn’t historically faced clear rules,” the WSJ said.

Edward Kennedy Jr. , the son of the late Sen. Edward M. Kennedy, co-founded Marwood in 2002. The SEC investigation began in late 2010 after Marwood predicted the FDA would delay approval of a new diabetes drug. Because quick approval was expected, the FDA’s decision caused a 50% decline in shares of the drug’s maker, Amylin Pharmaceuticals.

According to a Marwood analyst’s notes quoted in the settlement agreement, a former FDA official told Marwood employees in September 2010 that “contacts @ agency were saying that some @ agency still concerned about approval.”

Marwood “failed to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of MNPI,” the SEC said.

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