A New York-based hedge fund uses a consultant who frequently brags that he gets insights from a close friend and former colleague at the Office of Foreign Assets Control (OFAC). The former colleague and friend of the consultant holds a senior position at OFAC and has information about which entities and/or individuals will be added to the Specially Designated Nationals and Blocked Person List. The consultant informs one of the hedge fund’s traders that a Venezuelan company is about to be listed and suggests the fund trade on the basis of that information.
- The hedge fund should refrain from further use of the consultant or from trading based on his recommendations.
- Since the passage of the STOCK Act, the use of political intelligence consultants has been a major focus of enforcement authorities.
- Investment managers should avoid hiring consultants, outside experts, or analysts who purport to use special relationships with entities, governmental or private sector, to obtain confidential, non-public information.
- Investment managers should perform heightened due diligence on these outside consultants, experts, or analysts to confirm that they have the proper training and controls in place so that confidential information is not obtained or shared.
- Companies should consider email surveillance to ensure that employees are not receiving confidential information from outside sources.