INSIDER TRADING SCANDAL! Consultant Fed Non-Public Bond Secrets to Traders!

SEC v. Silver Point Capital, L.P. — U.S. Securities and Exchange Commission Litigation Release No. 26202, dated December 20, 2024.

The SEC charged Silver Point Capital, an investment adviser, with failing to implement and enforce adequate policies to prevent the misuse of material nonpublic information (MNPI). A consultant, acting on Silver Point's behalf on creditors' committees, allegedly received MNPI from a confidential mediation related to Puerto Rico's bond restructuring and communicated it to Silver Point's trading desk while the firm continued to trade those bonds. The SEC sought a civil penalty and injunction.

In Plain English

Imagine a company that invests in struggling businesses. This company had a consultant who sat on committees for these businesses, getting secret information. The company didn't have good rules to stop this secret information from being used by their own traders to buy or sell those businesses' debts. The government stepped in to investigate this potential misuse of secret information.

Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.

How the Alleged Scheme Worked

1. Investment Strategy Silver Point Capital, a registered investment adviser, specialized in investing in distressed companies. Their strategy involved two sides: a 'public side' that traded the debt of these companies and a 'private side' that participated in confidential negotiations over debt restructuring.
2. Consultant's Role A consultant, Chaim Fortgang, acted as Silver Point's representative on creditors' committees for distressed entities from 2004 to 2021. This role often provided access to material nonpublic information (MNPI) during confidential negotiations.
3. Information Barrier Risk The firm's public/private business model created a significant risk that MNPI from private negotiations could leak to the public trading desk and be misused. Silver Point purported to rely on an information barrier to prevent this.
4. Inadequate Policies According to the SEC, Silver Point's written policies and procedures were not reasonably designed to address the risks associated with its public/private business model and the consultant's role in receiving MNPI.
5. Failure to Enforce The SEC alleged that Silver Point failed to enforce the policies it did have, particularly concerning the consultant, Fortgang. This allowed for an unmonitored flow of information from Fortgang to the firm's public trading desk.
6. Puerto Rico Bond Mediation From September 2019 through February 2020, Fortgang sat on an ad hoc creditors' committee for the restructuring of Puerto Rico's defaulted municipal bonds. During this time, he received MNPI from a related confidential mediation.
7. Communication with Trading Desk Fortgang allegedly had extensive communications with Silver Point's public trading desk while possessing MNPI from the mediation. These communications reportedly occurred without involving the firm's compliance department.
8. Continued Trading While Fortgang was receiving MNPI from the Puerto Rico bond mediation and communicating with the trading desk, Silver Point continued to buy Puerto Rico bonds, creating a substantial risk of MNPI misuse.

The Enforcement Action

The SEC charged Silver Point Capital, L.P. with violating Sections 204A and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. The SEC sought a civil penalty and a permanent injunction. On April 4, 2025, the SEC announced the dismissal of this civil enforcement action.

Named in this action: Silver Point Capital, L.P..

Original SEC litigation release ↗ · Browse all cases