Four different hedge funds were implicated in the recent insider trading scandal involving Dell Computer shares. But only one of them managed to escape from the three-year investigation with their hedge fund jobs and business intact.
Diamondback Capital Management managed to hold onto half of its $5 billion in assets, although it did pay a $9 million penalty and signed an agreement with the government that admitted guilt.
So how did they manage to keep their hedge fund jobs when others went to jail? Well, according to Reuters, there are a number of defensive moves a hedge fund manager can implement, but few firms know about these steps or bother to take them.
It all comes down to being able to demonstrate a knowledge of all your employees’ business contacts and social connections. An insider trading case often centers around friendships that glide gradually into criminal behavior.
“Law enforcement now focuses on aggressively identifying and building insider trading cases around relationships – personal, social and professional – in a way that is unprecedented. For lack of a better term regulators are now “mapping” trader relationships, using both technology and human sources, to triangulate outlier trades against any personal contacts that may have been the source of non-public information.”
To protect your own hedge fund job and reputation, your firm needs to create and maintain its own “map” of employee networks. It’s a daunting task but one that now involves using proprietary software to sift through emails, phone traffic, even instant messages to identify connections that could present a risk before there’s an actual problem.
The days of settling for a quick background check are over. Now you can expect that if you have a hedge fund job, your firm will hire specialists (or outsource the job) who will dive much more deeply into your personal background and social relationships. They will also be looking for stock purchases or investments that fall outside your normal patterns of trading.
Have you or your firm taken steps to insulate yourself against possible insider trading charges? How do you feel about this further intrusion into your privacy? Add your comments below.
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One of the most effective ways of landing a hedge fund job is to interview for a job that doesn’t exist. If that sounds counter-intuitive, then check out a recent article in Forbes about mastering the “informational” interview.
More people land jobs through these informal interviews than formal job-openings, according to Sarah Stamboulie, a New York career coach who’s worked at Morgan Stanley and Cantor Fitzgerald, and has been a career coach at Columbia University.
The trick is to get a chance to speak with someone in your target company, either through a personal or business contact. Then to approach the informational interview as if you were a consultant on a fact-finding mission.
Stamboulie tells her clients to do extensive research on the company, the person and the market beforehand. Then to use that research in an email requesting a meeting. She encourages people to write at length about why they are interested in the company, what they admire about its strategy, how the company or department handled a particular challenge, and to write a bit about the person whom they hope to meet.
“Your email isn’t about how great you are,” says Stamboulie. “The bulk of the email is about why you want to meet with the friend or colleague. You need to make it clear you’ve done some grown-up research.”
Once in the interview, ask lots of questions about the company, its needs, and most importantly, what opportunities are being lost. Act as if you are a consultant trying to figure out how to help the company improve its business. Your goal, says Stamboulie, is to determine how your skills may somehow overlap with the company’s needs or areas of opportunity.
As an example, if you speak a foreign language or have worked overseas, ask about the company’s business in that region and see if your skills could expand opportunities for them.
Of course, there is also the chance that making a personal connection will lead to a job. One client of Stamboulie’s went for an informational interview at a hedge fund that he considered out of reach. Yet the manager was a Frenchman living in London who loved French food and wine. So did the candidate. The two hit it off on a personal level and a job eventually materialized.
Which is the whole point of informational interviews. Companies are always thinking about hiring. They may not have a formal job opening at that precise time, and many jobs are never actually posted. But these informational interviews get you on the radar screen and can lead to opportunities.
What about you? Do you have a careful strategy for developing informational interviews at your target hedge fund firms? Add your comments below.
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