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One in three hedge fund workers admits to knowing about rule-breaking, says US survey

One in three hedge fund employees has admitted to having “personally observed” rule-breaking a work, a survey has revealed, raising serious concerns about fraud in the high-rolling industry.

SAC Capital
SAC Capital, one of America's best known hedge funds, has been embroiled in insider trading allegations. One in three hedge fund workers surveyed in new US research said they too knew of wrong behaviour in the workplace.

A confidential survey of hedge fund workers conducted by Labaton Sucharow, an American law firm, found that 30pc said they had either witnessed or had “first-hand knowledge” of wrongdoing in the workplace. Even more, 35pc, reported “feeling pressured by their compensation or bonus plan to violate the law or engage in unethical conduct”. A quarter of respondents said they felt “other pressures that might lead to unethical or illegal conduct.”

A substantial minority - 13pc of respondents - said that the leaders of their hedge fund would be “likely to ignore” insider trading if they found it rather than report it to the regulators. However, Labaton Sucharow found that the introduction of the SEC’s Whistleblower programme is likely to help with a clear majority, 87pc, of respondents saying that the system would encourage them to report wrongdoing going forward.

The survey results follow in the wake of allegations of insider trading at high-profile hedge funds such as SAC Capital. Last week Michael Steinberg, who has worked at SAC since 1997 and its New York unit Sigma Capital since 2003, was charged with five counts of conspiracy and securities fraud. He has pleaded “not guilty”. Last month, Steve Cohen, the billionaire founder of SAC, agreed to pay a record $614m fine as part of a settlement over claims that two of the firms affiliates used insider information to make profits.

In the UK, the Serious Fraud Office has charged Magnus Peterson, the founder of Weavering Capital, with fraud.

“Our members have a deep commitment to corporate integrity,” noted Lara Block, Executive Director of the Hedge Fund Association. “Although some of the findings are troubling, this groundbreaking survey provides valuable insights that will help the industry to further strengthen its investor protection programs and root out any bad actors.”

Jordan Thomas, Chair of the Whistleblower Representation Practice at Labaton Sucharow. “Without individuals willing to report possible securities violations, internally or externally, responsible organizations and law enforcement authorities cannot police the marketplace effectively and efficiently.”