Securities litigation and enforcement Securities Litigation. The SEC recently extracted a settlement from a hedge fund that raises difficult compliance related questions for investment advisers. On August 2. 1, 2. Deerfield Management Company L. All About Me Activities For Infants. P. Deerfield, a hedge fund and registered investment adviser, paid approximately 4. SEC charges that Deerfield failed to create and enforce policies and procedures reasonably designed to prevent the misuse of material, nonpublic information in violation of Section 2. A of the Investment Advisers Act of 1. Capital punishment is a legal penalty in the United States, currently used by 31 states and the federal government. Its existence can be traced to the beginning of. The allegations centered on confidential information that Deerfield analysts had obtained from a political intelligence firm. The SEC had previously charged certain of those analysts with insider trading which is likely why the SEC took an aggressive posture with the firm. The SEC ignored the concept of risk based compliance controls. Although Deerfield had extensive compliance controls concerning interactions with experts from expert networks, the controls were less robust for dealings with more general types of research firms, such as political intelligence firms. Expert networks are companies that have affiliations with experts in various types of industries, some of whom may work at public companies. Expert networks make their experts available for consultation in return for a fee. When engaging with experts from expert networks, Deerfields compliance controls included conducting due diligence to evaluate the expert networks compliance controls, providing oral admonitions to the expert not to disclose inside information, and summarizing the interaction in an internal database. In contrast, when engaging with research firms, Deerfield only required its analysts to demonstrate that the research firms observe policies and procedures to prevent the disclosure of material non public information. Deerfields compliance manual did not specify how this was to be done. Kern%20Table%202.jpg' alt='What Is A Bifurcated Trial Process Definition' title='What Is A Bifurcated Trial Process Definition' />Moreover, Deerfield employees were expected to identify potential issues of concern and report them to supervisors. A few years ago the SEC scrutinized several hedge funds for using expert networks as a way to attempt to gain material, nonpublic information about the employers of certain of the experts. Therefore, it is not surprising that Deerfield, like many hedge funds, implemented enhanced controls around the use of expert networks. Indeed, the SEC surely would have criticized Deerfield had the firm not done so. One of the bases for alleging that Deerfields controls were deficient with respect to consultations with research firms, including political intelligence firms, was that the controls were not as rigorous as the controls for consulting with expert network firms. Pointing to the heightened controls in place for utilizing the services of expert networks as a way of demeaning the controls in place for research firms seems like a false, misleading and troubling comparison. Unlike expert networks, research firms do not retain the services of other individuals employed by public companies, who often have access to their employers material, nonpublic information. What Is A Bifurcated Trial Process Definition' title='What Is A Bifurcated Trial Process Definition' />Land of Borchardt is a compilation of Borchardts, prototype lugers, early production P04s, parabellums and accessories by a world reknown collector. This years Atlantic hurricane season has been unusually devastating. Throughout September and early October, Hurricanes Harvey, Irma, Jose, and Maria tore through. As the risks of utilizing research firms and expert networks are fundamentally different, one would naturally expect that the control structures would also be different. The charges are not consistent with the factual allegations. The SEC contended that Deerfield did not enforce its policies and procedures with respect to the engagement of a political intelligence firm the Research Firm because Deerfield supposedly ignored several purported red flags that suggested the Research Firm might be improperly sharing material, nonpublic information with Deerfield analysts. One such red flag was the fact that the Research Firms Chief Compliance Officer was also its political intelligence analyst. Despite the conflict of interest created by a Chief Compliance Officer overseeing their own work, Deerfield continued to work with the Research Firm. The SEC also alleged that several communications with the Research Firm, which were forwarded to Deerfield management, including the Chief Compliance Officer and General Counsel, were red flags because they contained potential insider information. A careful reading of the selected examples, however, raises questions as to whether the emails actually were suggestive of the Research Firm providing material, nonpublic information in breach of confidentiality obligations. For example In July 2. Research Firm emailed several Deerfield analysts about a forthcoming Centers for Medicare and Medicaid Services CMS regulation, saying,. I just heard from a reliable CMS source the reg is likely coming out today after 4pm. Noticeably absent from the SECs allegations was any suggestion that the Research Firm had obtained andor communicated the substance of the not yet released regulation. In September 2. 01. Deerfield analyst circulated a summary of a conversation he had with the Research Firm. The analyst noted that the Research Firm had a contact on the inside of a closed door meeting, and that certain government regulations would be announced in 2. The SEC did not explain how the Research Firm stating that regulations would be announced within the following year with an effective date another year after that constituted material, nonpublic information. In September 2. 01. Deerfield analyst emailed the Research Firm regarding an anticipated coverage decision by Medicare, asking, Is it already public or did you just hear about it from CMS guys  The SEC did not allege that this information was non public. Far from being indicative of the Research Firm providing sensitive information in breach of confidences, the emails seem more consistent with a political intelligence firm providing insight derived from general market intelligence that it had been able to gather. It is hardly surprising that these three isolated emails did not trigger alarm bells within Deerfields management. This demonstrates the real risk of the SEC being willing to twist emails and other documents out of context to try to force a settlement as regulated entities, such as hedge funds, are often reluctant to litigate against their regulators. The SEC further alleged that other communications between Deerfield and the Research Firm contained material, nonpublic information that resulted in trading activity by Deerfield. For example In May and June 2. Research Firm provided Deerfield analysts with specific information about confidential CMS plans to cut Medicare reimbursement rates for certain radiation oncology treatments. Deerfield then shorted the stock of two companies that offered products and services related to radiation oncology, resulting in a profit after CMS publically announced the rate cut. In May and June 2. Research Firm provided Deerfield analysts with specific information regarding a proposed 1. Medicare reimbursement rates for certain kidney dialysis treatments, services and drugs. Deerfield then shorted the stock of a company that offered products and services related to kidney dialysis, resulting in a profit after CMS publically announced the 1. In November 2. 01. Research Firm then provided Deerfield with specific information regarding confidential CMS plans to implement the above mentioned 1. Deerfield bought shares in a company that provided products and services related to kidney dialysis.