"The Ship Be Sinkin'"

The Galleon scandal demonstrates the damage and even fatal blow an employee can inflict on a company with the firm’s confidential information. Galleon‘s alleged insider trading violations stem from an Intel employee faxing confidential sales and pricing information to the fund.


9 November 2009

History has shown us that just one breach will sink a ship—whether it is a galleon in the Spanish Armada or the basketball “crew” Micheal Ray Richardson famously referred to in this post’s title. The Galleon scandal demonstrates the damage and even fatal blow an employee can inflict on a company with the firm’s confidential information. Galleon‘s alleged insider trading violations stem from an Intel employee faxing confidential sales and pricing information to the fund. In the two weeks since the story broke, Galleon has liquidated its $3.7B fund and Intel has hired a law firm to launch an internal investigation.

Virtually every fund has a binder that outlines the fund’s insider trading policies and procedures, However, a binder isn’t going to prevent information leaks—like an Intel employee faxing confidential data to Galleon. To protect confidential information, investors and livelihood, fund managers must implement security measures that:

1. Restrict access to material information by individuals inside the fund
2. Control what each individual can do with the information
3. Generate an audit trail identifying what information an employee viewed and when they viewed it

Many fund managers have already taken steps to protect the performance data they share with investors because they know when it’s leaked on the Internet that it damages their relationships and reputation. It’s time for them to implement similar safeguards to ensure that internal confidential information stays exactly that—internal.