When "hedge fund" has already become a household term, many amateur investors are tempted to set up their private own hedge funds to engage in speculative or even illegal trading activities. They may have a wrong perception that the regulators would not care if their funds are not raising money from the public.
SEC recently charged seven individuals with involvement in an insider trading scheme that netted over US$3.7m in profits made or losses avoided over fours years. The defendants include a father and his three sons, a family-run hedge fund, and other relatives and friends. This was a "family business" of financial crime!
The father Zvi Rosenthal, formerly a VP at Taro Pharmaceuticals Industries, tipped his sons with confidential information concerning at least 13 separate Taro announcements, including earnings results and drug approvals by the Food & Drug Administration. The family pooled their money into a hedge fund in order to conceal their insider trading of Taro stocks & options.
In addition, one of the sons tipped his supervisor at his law firm, a friend who worked at an accounting firm, and his father-in-law. Two of the defendants are also charged with using confidential information (about two possible mergers of other entities) obtained from their respectively employers PwC and E&Y.
What a professional team of insider trading!
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