“Staff training on policies and procedures is critical,” said Luke Cadigan, “to reduce exposure to insider trading investigations.” Cadigan, a partner in the Government Enforcement Group at law firm K&L Gates, was the final speaker in a four-part webinar on “Fixing Broken Windows” organized by GARP on March 11, 2014.

Cadigan emphasized the message of the past three speakers, namely, that the Securities and Exchange Commission has become much more focussed on catching financial wrongdoing—from the lowest levels up. Investigations take time and effort and can be costly, thus, firms “want to convince the SEC staff there’s nothing there they need to follow up on.”

When it comes to texts and e-mails, “make [employees] aware that humour, sarcasm, irony do not translate,” said Cadigan. SEC staff “love finding quotes” that will sound damaging in court.

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“Traders should document the bases for their trades where possible,” he advised. Talk to compliance staff whenever an issue might arise, he urged. “It’s difficult to prove someone intended to do wrong if they visited the compliance staff first.”

Cadigan pointed out that the SEC has signalled it plans to use its Administrative Process more often. He characterized this as having: no right to jury, no discovery generally, and allowing for the admission of all relevant evidence, including hearsay. An Administrative Process has the advantage that the trial occurs within 4 to 5 months, and the decision is made in under a year. “Many people just want their day in court,” said Cadigan. “In an AP, you have less time to wait to get it.” ª

Go to Part 1, an overview of Fixing Broken Windows in the financial sector. ª

Go to Part 2, the SEC perspective on Fixing Broken Windows. ª

Go to Part 3, the FBI perspective on Fixing Broken Windows. ª

Click here to go to the GARP webinar presentation.