Newest weapon in U.S. hunt for insider traders paying off

Tue Nov 1, 2016 4:59am EDT
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By Nate Raymond

NEW YORK (Reuters) - When plumber Gary Pusey pleaded guilty in May to insider trading, it was a victory not just for New York prosecutors but for a little-known squad inside the U.S. Securities and Exchange Commission that uses data analysis to spot unusual trading patterns.

Formed in 2010, the Analysis and Detection Center of the SEC's Market Abuse Unit culls through billions of rows of trading data going back 15 years to identify individuals who have made repeated, well-timed trades ahead of corporate news.

The new strategy is starting to show results, enabling the SEC to launch nine insider trading cases, around 7 percent of cases the agency brought since 2014 against people who trade on confidential corporate information.

It signals a shift in how the agency initiates insider trading probes, which more often are launched based on referrals from Wall Street's self-regulator Financial Industry Regulatory Authority, or an informant's tip.

"It's essentially the new frontier," said Andrew Ceresney, the SEC's enforcement director. "We have tremendous amounts of data available to use, and we've been developing tools to take advantage of that."

That data was key to spotting trades by Pusey ahead of at least 10 deals from 2014 to 2015 involving Barclays Plc, where his friend Steven McClatchey worked.

The SEC has also used data mining in a high-profile probe of traders who it says made more than $100 million using information obtained by Ukrainian hackers.

Others charged include former employees of law firm Wilson Sonsini Goodrich & Rosati and investment bank Goldman Sachs Group Inc.. In August, former Perella Weinberg Partners banker Sean Stewart was convicted in a case credited to the SEC unit. He denies wrongdoing and is expected to appeal.   Continued...

Former Barclays Plc director Steven McClatchey leaves the federal courthouse following his arrest earlier in the day on insider trading charges, in Manhattan, New York, U.S. on May 31, 2016.  REUTERS/Nate Raymond/File Photo