Akin Gump Lawyers Analyze Front‑Running SEC and DOJ Investigation

Hedge Fund Law Report, in its article “Parallel Actions Against Securities Analyst Show SEC and DOJ Focus on Front‑Running,” has quoted Akin Gump litigation partners Michael Asaro and Peter Altman and investment management partner Brian Daly regarding the recent Securities and Exchange Commission (SEC) enforcement action and parallel criminal complaint against securities analyst Sergei Polevikov.

According to the publication, Polevikov worked as a quantitative analyst at a large securities advisory firm and allegedly executed a front-running scheme through a brokerage account he established in his wife’s name. Among the complaints from the SEC and U.S. Department of Justice (DOJ), Polevikov is being charged on three counts of federal antifraud violations, which Asaro says is notable, as the DOJ can impose jail time, but needs to prove intent of misconduct. He added, “[T]he sheer volume of trades and profits alleged – more than $8 million – was also likely a factor that tipped this towards criminal charges.”

The publication notes that one element of the SEC and DOJ’s cases was brought to light through the investigation of Internet protocol (IP) addresses. To that, Altman observed, “[O]nce again, data is at the forefront of an SEC enforcement action,” noting the “work of the Division of Enforcement’s Market Abuse Unit’s Analysis and Detection Center in identifying a large number of small trades that, in the aggregate, led to millions of dollars in profits. The lesson is clear: there is no such thing as trading under the radar”

The publication concludes by noting that the SEC has taken no enforcement action against Polevikov’s employers, which Daly credits to the employers’ meticulous documentation of their compliance departments, saying “[T]he details and documentation matter. It appears that the [employers] were scrupulous in obtaining timely attestations and outside account materials, and we can assume that they were reviewed in a documented manner. That focus on process may well have saved those [employers] from a separate Section 204A ‘inadequate policies and procedures’ audit.”