SEC Comes Down on Chicago Firms on Misuse of Material Nonpublic Information

Each agreed to pay penalties of $375,000, and Wolverine Asset Management will pay disgorgement of $364,145.80, plus prejudgment interest of $39,158.47.

Ultimately the order found that these affiliates violated the firms’ policies and procedures to prevent the misuse of material nonpublic information. Also the SEC found that the information sharing exposed deficiencies in the firms’ policies and procedures, including vague provisions and inadequate guidance, monitoring or surveillance of potential information sharing.

According to the SEC’s order instituting administrative proceedings:

• From February to March 2012, Wolverine Trading, a broker-dealer, and Wolverine Asset Management, an investment adviser, repeatedly shared information in violation of their firms’ policies and procedures.
• The affiliates shared their trading positions and strategies for TVIX, an exchange-traded note whose market price traded at a premium to its indicative value after new issuances of the note were temporarily suspended. In addition, despite information barriers between the affiliates, traders from both affiliates met to discuss issues regarding TVIX. The affiliates also discussed details surrounding the potential reopening of new issuances of TVIX. Prices for the note fell on March 22, 2012 before its issuer announced the reopening of issuances of the note.
• Wolverine Asset Management subsequently profited from a market opportunity that it should not have received.

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Michael J. Osnato Jr., chief of the Enforcement Division’s Complex Financial Instruments Unit, said:

The federal securities laws require not only careful establishment of policies and procedures to prevent the misuse of material, nonpublic information, but also vigorous maintenance and enforcement of those policies and procedures. Without consistent oversight and vigilance, broker-dealers and investment advisers like Wolverine Trading and Wolverine Asset Management fail to counteract the ever-present risk of misuse.