From an SEC action announced today: http://www.sec.gov/litigation/admin/2015/34-76109.pdf 37. The “Information Barrier Procedures,” which were applicable across WT, WAM, and their affiliates (“Wolverine Entities”), set forth in their introduction that they “establish the manner in which [the Wolverine Entities] will conduct business as separate and distinct organizations free from conflicts of interest and prevent the improper use or dissemination of material non-public information.” 38. The Information Barrier Procedures highlighted the “functional and physical separation” among the Wolverine Entities and required that personnel of the Wolverine Entities maintain the confidentiality of trading positions, activities, and strategies. Instructions were given regarding the “responsibility” of any “officer or employee of an entity [that] obtains inappropriate information about another entity’s trades, positions or strategies,” including “inform[ing] the Compliance Department,” “maintain[ing] . . . the confidentiality of such information,” and “refrain[ing] . . . from engaging in any trading or other activities that make improper use of such information.”
Complete and utter BS. So they talked about what would happen if CS issued more shares, big deal. Could have gone the other way. Truly, do the SEC and FINRA have nothing better to do...
It was worse than that. The affiliates arranged for Wolverine Asset Management to participate in the creation of new notes to cover their short position at a discount to the market price, which was still trading at a premium due to the Creation Suspension Period. As a non-market maker entity, the asset management affiliate should not have been permitted to submit the order to create new notes. 35. In the early afternoon, the WAM PM submitted a creation request to VLS on behalf of “Wolverine.” Shortly thereafter, the CSSU Director sent the WAM PM and the WT Trader, among others, the final swap term sheet, requesting that the WAM PM confirm the terms on behalf of WCAF and instructing that the WT Trader must submit the creation request to VLS, noting that “[o]n the creation leg, we can only face the same entity authorized as MM for these with Velocity.” In response to the CSSU Director, the WAM PM confirmed the swap on behalf of WCAF and replied that they would “coordinate” with VLS regarding the creation request. Despite the CSSU Director’s instruction, WAM, not WT, submitted the order to create TVIX notes. As a result, WAM earned greater profits because it covered its short position in TVIX with those notes, which were priced close to the then indicative value at $6.8924, whereas any other non-Market Maker would have had to cover its short position at TVIX’s market price, which continued to reflect a greater premium over indicative value. The closing price of TVIX on March 28 was $7.20.