As discussed at length in my February column for Compliance Week, on January 19, 2012, the U.S. Sentencing Commission proposed amendments to the U. S. Sentencing Guidelines that would raise the stakes for professionals at hedge funds and other investment firms. The Sentencing Commission proposed to amend the guideline dealing with insider trading by two levels if the offense involved “sophisticated insider trading.”
On Friday, April 13, 2012, the Sentencing Commission voted on and approved proposed amendments, but changed some of the key language in the original proposal as related to insider trading:
- Instead of increasing recommended sentences for “sophisticated insider trading,” the approved proposed amendment increases the recommended sentence for an "organized scheme to engage in insider trading, defined as "a scheme to engage in insider trading that involves considered, calculated, systematic, or repeated efforts to obtain and trade on inside information, as distinguished from fortuitous or opportunistic instances of insider trading."
- With respect to § 3B1.3 of the Sentencing Guidelines, which increases the offense level if the defendant "abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense," the approved proposed amendment adds that such an enhancement "should be applied if the defendant's employment in a position that involved regular participation or professional assistance in creating, issuing, buying, selling, or trading securities or commodities was used to facilitate significantly the commission or concealment of the offense. It would apply, for example, to a hedge fund professional who regularly participates in securities transactions or to a lawyer who regularly provides professional assistance in securities transactions, if the defendant's employment in such a position was used to facilitate significantly the commission or concealment of the offense.... (emphasis added).
The proposed amendments are in response to a provision in Dodd-Frank that requires the Sentencing Commission to ensure that the guidelines provide appropriate penalties for cases involving securities fraud, taking into consideration the potential and actual harm to the public and the financial markets from those offenses. The WSJ reports that the approved proposed amendments will become effective in November unless Congress votes to modify or disapprove them.