SEC Settles with Research Firm over Mishandling of Insider Information: Political Intelligence Firm, Marwood Group, Fined $375,000 by SEC, Admits Fault and Agrees to Implement Remedial Measures

Sullivan & Cromwell LLP - December 1, 2015
Download

On November 24, 2015, the Securities and Exchange Commission announced that it had entered into a settlement order with Marwood Group Research LLC, a so-called “political intelligence firm,” in connection with the mishandling of information that potentially constituted material non-public information (“MNPI”), Marwood agreed to admit to violations of Section 15(g) of the Securities and Exchange Act of 1934 and Section 204A of the Investment Advisers Act of 1940, to pay a $375,000 penalty, and to take specified remedial actions.

The SEC made the following specific findings of fact to support the settlement order:
 

  • Marwood encouraged its employees to communicate with and maintain relationships with government employees in order to develop written reports, which would then be distributed to hedge funds and other securities market participants, concerning likely outcomes of future government actions.
  • Marwood had written policies and procedures that prohibited the dissemination of MNPI and required any potential such information received from any source to be brought to the attention of the firm’s chief compliance officer (“CCO”).
  • In two instances in 2010, Marwood research employees did not follow the CCO escalation procedure or otherwise quarantine information received from sources at federal government agencies that potentially constituted MNPI, and Marwood subsequently distributed written reports containing that information to hundreds of its clients.

The SEC concluded that Marwood’s interactions with government agents created a substantial risk that MNPI would be obtained and misused, that Marwood’s policies were not reasonably tailored to its business, and that Marwood failed to reasonably enforce the policies that it did have in place.