The U.S. Securities and Exchange Commission (SEC) announced that a political intelligence firm, Marwood Group Research, agreed to admit wrongdoing and pay a $375,000 penalty for compliance failures. Marwood Group’s misconduct occurred in 2010, when analysts sought and received information regarding policy issues or pending regulatory approvals at the Centers for Medicare & Medicaid Services and the Food and Drug Administration (FDA).
As part of its business, Marwood provided hedge funds and other clients with regulatory updates and analysis about potential timing and developments for future government actions or rulemaking decisions.
In the process of gathering this content, Marwood came across material nonpublic information which it did distribute directly to clients, despite red flags regarding information received by analysts. This material nonpublic information could then be used to inform securities trading decisions, some of which could be considered insider trading.
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As a result of these infractions, Marwood agreed to retain an independent compliance consultant after an SEC investigation found that the firm failed to properly inform compliance officers about instances when analysts obtained potential material nonpublic information from government employees.
Under Marwood’s written policies and procedures, compliance officers are central to the firm’s efforts to prevent confidential or nonpublic information from being released to clients, who in turn could use it to influence their securities trading decisions.
Andrew J. Ceresney, Director of the SEC’s Enforcement Division, said:
Government employees routinely possess and generate confidential market-moving information. 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.
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