The Securities and Exchange Commission said a political intelligence firm admitted wrongdoing and agreed to pay a $375,000 penalty for compliance failures in acquiring and handling potential material non-public information.
Marwood Group Research LLC also agreed last week to retain an independent compliance consultant.
Marwood is a healthcare-focused advisory and consulting firm headquartered in New York City with offices in Washington, D.C. and London. It provides services to institutional investors and healthcare companies.
Marwood Group’s written policies and procedures expressly prohibited acquiring or disseminating material nonpublic information and required employees to bring it to the attention of the compliance department if they encountered anything confidential.
But an SEC investigation found that Marwood failed to properly inform compliance officers when analysts obtained potential material nonpublic information from government employees.
Andrew Ceresney, chief of the SEC’s enforcement division, said, “When political intelligence firms like Marwood Group obtain information from government employees, they must take the necessary steps to prevent the dissemination of potentially material nonpublic information obtained in the course of their research.”
The SEC said Marwood Group’s misconduct occurred in 2010. Analysts sought and received information about policy issues or pending regulatory approvals at the Centers for Medicare & Medicaid Services and the Food and Drug Administration.
Marwood Group provided hedge funds and other clients with regulatory updates and analysis about potential timing and developments for future government actions or rulemaking decisions.
In gathering content for its “research notes,” Marwood Group encouraged its analysts to maintain relationships with government employees.
“Since government employees often are familiar with confidential matters at their agencies, such interactions increased the likelihood that Marwood Group employees could acquire material nonpublic information in the course of their work,” the SEC said.
Despite the red flags, Marwood Group drafted “research notes” and distributed them directly to clients who could have used any material nonpublic information when they made securities trading decisions.
Marwood Group’s analysts failed to bring the information to the compliance department’s attention so it could be properly vetted for any material nonpublic information ripe for insider trading, the SEC said.
The SEC’s order (pdf) said Marwood Group violated rules requiring investment advisors to “establish, maintain, and enforce written policies and procedures reasonably designed . . . to prevent the misuse . . . of material nonpublic information.”
Michael McKeon, a partner in Marwood Group based in New York, said in a statement emailed to the FCPA Blog: “After an exhaustive four year review of our company and its business practices during which we cooperated completely, we are pleased that this settlement finally puts this matter behind us.”
“This administrative resolution addresses conduct that occurred in 2010, which the firm proactively has since taken steps to remediate,” McKeon said. “At our inception, unlike many other policy research firms Marwood voluntarily registered as a broker-dealer because we take compliance responsibilities very seriously. As we look forward, we expect nothing less than to continue to provide the highest quality work to our clients.”
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.