SEC Charges Silver Point Capital with Nonpublic Information Policy Failures in New Development

The U.S. Securities and Exchange Commission recently filed a suit against Silver Point Capital, a Connecticut-based hedge fund with $33 billion in assets. The SEC charged Silver Point with violating nonpublic information laws related to Puerto Rico bonds. The case was filed in the U.S. District Court for the District of Connecticut.

The charges specifically focus on the actions of Chaim Fortgang, an outside consulting attorney hired by Silver Point. Fortgang, who has since passed away, was involved in negotiating Puerto Rico’s debt restructuring between 2019 and 2020. Having access to material non-public information, Fortgang’s interactions with Silver Point’s private and public sides are under scrutiny by the SEC.

Silver Point allegedly lacked sufficient policies to prevent the misuse of nonpublic information, particularly in cases where members of the private and public sides of the firm communicated. The firm’s compliance department was not always involved as required before communication occurred.

During the negotiation period for Puerto Rico bonds, Fortgang reportedly made numerous calls to the public team without compliance approval. Silver Point made a substantial profit of $29 million trading Puerto Rico bonds in late 2019 and early 2020, according to the SEC.

Silver Point has defended itself, stating that there was no wrongdoing and that their information barrier policies and compliance program were adequate. The firm has also waived attorney-client privilege in the SEC investigation, asserting that Fortgang acted solely as an attorney and provided legal advice to members of the firm.

While Silver Point challenges the SEC’s claims, the SEC has not explicitly alleged that Fortgang shared information from the Puerto Rico bond negotiations with the public team. The ongoing legal proceedings involve prominent legal figures hired by Silver Point to refute the SEC’s charges.

This case highlights the importance of strict compliance with nonpublic information policies in the financial sector. It serves as a reminder of the legal and regulatory obligations that firms must uphold to maintain integrity in their operations.