Recently, several stories of law firm related insider trading have made news. When lawyers or staff violate the law, the resulting media coverage and legal action causes embarrassment for firms and clients alike. It also casts a shadow on the reputation of the industry as a whole.
Conventional wisdom depicts insider risk as lawyers passing on first-hand, price-sensitive information to a third party, such as the 1995 case of an associate at an AmLaw 50 firm who admitted to tipping off a relative regarding several mergers and acquisitions. But today, the risks have grown, particularly due to the increased use of technology.
Growth of Technology Has Increased Risk and Temptation
Most firms have programs to educate personnel about insider trading and their professional obligations. And most take steps to control risk by using matter “code words” and limiting document distribution.
Yet in an environment where individuals have broad access to sensitive information, temptation may lurk. This is particularly true as new search tools make it easier to uncover sensitive materials stored electronically.
From Theory to Reality – Examples of Firm-Related Insider Activity:
A secretary at an AmLaw 10 firm accessed and disclosed material information to an accomplice who executed trades netting $1.5 million
IT managers at a 140-lawyer US firm and prominent Canadian firm were caught using data obtained by searching firm electronic files to engage in insider trading
Lawyers at AmLaw 25, AmLaw 50 and top Canadian firms were all caught passing insider information to external parties they gathered by conducting “fishing expeditions” within firm document and other information repositories
An associate at an AmLaw 15 firm gained access to a draft merger agreement and purchased shares on this information
Material Information is Dispersed Throughout the Organization
Material information is not limited to merger and acquisition preparations. It may also include corporate earnings, bankruptcy preparations, technology, product and patent developments, HR and management re-organization, or strategic plans.
This information or descriptive detail may be disclosed to multiple practice groups and stored in multiple electronic repositories including document, records, CRM, time entry and portal applications – all which may be accessible to lawyers, staff, contractors and IT personnel.
Unfortunately, there’s no foolproof solution that can prevent individuals from acting with deliberate malfeasance. But by improving training and using protective measures including automated access controls and logging, firms can better protect themselves against risks of abuse or error. Yet manual approaches to limiting exposure on a “need to know basis” are difficult to actively update.
The Intapp Solution – Intapp Walls
Intapp Walls provides firms with unprecedented visibility and control over confidential matters. It offers real-time security enforcement, extensive logging, and reporting options that include suspicious behavior alerts. It also provides self-updating and delegated administration capabilities to help ensure that only authorized personnel are able to access price-sensitive matters, and that access rights are updated or revoked as team assignments change.
Intapp Walls enables firms to demonstrate that they’re taking the strongest measures available to limit the insider trading risk.