Subject: BSA/AML Compliance Hits the Big Leagues
From: "Jeremy Kroll" <[email-masked]>
To: "Hunter" <[email-masked]>
Date: Tue, 24 Apr 2012 14:02:17 +0000

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[2]K2 Global Consulting N.A., LLC
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    2. http://www.k2global.net

Dear Friends,

We’ve already had a busy 2012, with plenty of developments at both K2 and in
the industries we focus on. Let’s catch up by discussing some recent news
and the evolving regulatory environment; then I’d like to tell you tell you
a little bit about the newest members of our team:

_The Value of a “First-to-Know” Capability_

January brought further scrutiny to the financial sector. Level Global's
Anthony Chiasson was arrested as the most prominent figure in an insider
trading scandal that revolved around Dell Computer's shares. But Diamondback
Capital Management, also caught up in the Dell fiasco, signed a
non-prosecution agreement with the government mostly because of the efforts
the firm made to show it could maintain what we call a "first-to-know"
capability.
The U.S. government likes to catch big fish, and is growing more interested
in pursuing criminal prosecutions than merely issuing fines. If convicted,
Chiasson will be the second major founder and fund manager the US Attorney
will have been able to make a case against. More importantly, [3]as my
colleague Jason Golub notes in this post on our site, new rules have been
proposed to greatly increase the potential penalties for insider trading.
  Links:
    3. http://www.k2globalconsulting.com/news/insider-trading-penalties-likely-to-increase

The threat of these new penalties will only increase pressure on lower-level
figures to cooperate with the government in gathering evidence on insider or
"rogue" trading activities. Now anyone in the business of seeking Alpha has
to think long and hard about vetting and supervising employees to protect
against such risks. Firms operating broker-dealers, mutual funds, ETFs and
any other trading vehicles must now be aware that the government will hold
their firms responsible for the conduct of employees.

Believe it or not, there is a bright side to all of this.

At the same time the government is ratcheting up the intensity surrounding
insider trading investigations, firms like Diamondback have discovered a
good line of defense against the reputation risk these kinds of
investigations can entail.

[4]Jason commented on Diamondback’s non-prosecution agreement with the
government here. Alone among the several firms that were raided by the FBI
or caught up in the Dell-trading investigation, Diamondback remains an
active and substantial hedge fund. They lost some of their assets during the
difficult period between the raid and settling with the government, but they
have been able to put the matter to rest and move on.
  Links:
    4. http://www.k2globalconsulting.com/news/diamondback-shows-the-value-of-cooperation-and-due-diligence

Regulators often require a firm to hire a “monitor” which helps
prevent criminal prosecution of the enterprise; but it also forces the firm
to give up control of some of their business. We recommend that, if you
manage a fund, you get out ahead and self-appoint a third party to work with
you to implement and test compliance risk controls and procedures.
I detail some of what Diamondback did and what our firm can do for other
hedge funds who find themselves in a similar position in this Reuters
Opinion piece, [5]How to Avoid the Insider Trading Net. As I note in the
piece, the strongest position to be in when dealing with the government is
having a “first-to-know” capability. One way we help clients build this
capability is by mapping employee relationships and correlating relationship
data with outlier trading activity. This work alone will help demonstrate to
investigators a good-faith effort to stand against insider trading.
  Links:
    5. http://blogs.reuters.com/great-debate/2012/01/31/how-to-avoid-the-insider-trading-net

Combining relationship mapping with experienced investigative work will
allow any firm to quickly respond to questions before suspicions reach your
investors. if you'd like our help in creating a “first-to-know” capability,
please [6]let us know.
  Links:
    6. http://www.k2globalconsulting.com/contact

_K2 Global’s Recent Hires_

I’m pleased to announce that we’ve had two exceptional talents join our
firm, one in London and the other in New York.

_Paul de Bendern _has had an extensive and illustrious career in journalism,
with 16 years at Reuters. He held senior positions in Latin America, North
Africa, Turkey, Scandinavia and most recently was in charge of Thomson
Reuters’s 100 news staff in India.

Paul has strong on-the-ground experience in the financial, energy &
commodities sectors—and he is also adept at political risk coverage. From
his posts in New Delhi, Istanbul/Ankara, Algiers, Helsinki, Stockholm and
Panama City he has built up an extensive network. His contacts will further
broaden the range of expertise that the K2 London office uses to manage and
mitigate its clients’ risks.

_Thomas Bock _has over 18 years of experience serving the financial services
industry in the areas of anti-money laundering, regulatory compliance, fraud
investigations and risk management. He specializes in Know Your Customer,
Customer Due Diligence, Transaction Monitoring, USA PATRIOT Act, Risk
Assessments, Enhanced Due Diligence, FCPA and financial fraud
investigations.

Throughout his professional career, Tom conducted a series of corporate
fraud investigations, created fraud prevention policies, worked with
clients’ Compliance, Audit and Legal groups to perform anti-money laundering
assessments, training, risk evaluation and investigations, and performed
corporate governance reviews and pre-acquisition due diligence compliance
assessments. Prior to joining K2 Global, Tom held various managing positions
at CIT Group, Ernst & Young, Daylight Forensic & Advisory LLC and KPMG.

I’d be happy to go into further detail about how our growing team can
benefit you and your enterprise, so please feel free to _get in touch._

Best,

Jeremy Kroll
CEO and Co-Founder
[7]K2 Global Consulting N.A., LLC
[8]www.k2global.net
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