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Compliance Eyes E-Mails For Rumors


Date: Wednesday, October 15, 2008
Author: Emii.com

Chief compliance officers at some hedge fund firms are keeping a closer eye on staff e-mails in response to the Securities and Exchange Commission's focus on false rumors. Regulators are looking into alleged rumor-mongering that some have blamed for sharp falls in the share price of some financial institutions, notably Lehman Brothers and Goldman Sachs.

Over the past couple of months, CCOs at some firms have expanded their e-mail filtering software to look beyond a more limited set of unprofessional and trading-linked words to the names of institutions covered by the SEC's ban on short selling. The expanded lists of words that trigger red flags also include the names of issuers not on the short sale list but that are in the fund's portfolio and are falling. "CCOs will want to consider creating 'rumor lists' for names [of companies] that are the subject of rumors," said Julie Richard, partner with Venable in New York. "Supervisory procedures should be updated and additional training provided [to deal with such lists]." Compliance professionals should also keep a record of their processes and those followed by their trading staff, she added.

One fund of funds CCO said her service provider had produced a list of a 1,000 words that her firm uses to filter e-mails on a monthly basis.