SEC Probes of Insider Trading Are Increasing, Chairman Says

Investigations of possible insider trading in takeovers involving hedge funds and private equity firms are on the increase at the Securities and Exchange Commission, the SEC’s chairman said Wednesday.

“That is an increasing area of enforcement attention. We have a number of ongoing investigations. The pace of our investigative activity has been quickening on this for some months,” SEC Chairman Christoper Cox said.

An SEC spokesman said that 20% of all SEC investigations opened during fiscal 2006, which ended last month, dealt with insider trading, up from 18% in fiscal 2005 and 17% in fiscal 2004.

Cox’s remarks came amid SEC probes of possible insider trading ahead of drug maker GlaxoSmithKline’s bid for medical products maker CNS Inc.; mining group Barrick Gold Corp.’s deal with rival Placer Dome Inc.; and a two-firm private equity deal to buy out retailer Petco Animal Supplies Inc., among other transactions.

“Of course, insider trading is something the commission has attended to as a matter of its central responsibilities,” Cox told reporters after an SEC meeting in Washington.

At the meeting, Cox and his four colleagues voted unanimously to adopt a measure that excludes executive pay deals in the enforcement of a rule that says a tender offer, often used to acquire stock in a takeover, must give all shareholders the same price for their shares.

Recent court decisions had caused uncertainty about the rule, SEC commissioners said.

The new measure aims to clarify that the price given to all shareholders need not include employee compensation, severance or other benefit arrangements given to company executives as part of the takeover.