SEC asks court to drop nonpublic information charges against Silver Point

Bloomberg News

The U.S. Securities and Exchange Commission asked a federal court to drop the SEC's charges against Silver Point Capital that it failed to establish, implement and enforce policies and procedures to prevent the misuse of material nonpublic information.

The SEC never accused Silver Point Capital of using material nonpublic information in its trading of Puerto Rico municipal bonds.

Rather, in its filing in the U.S. District Court for Connecticut on Dec. 20, it said the firm's "policies and procedures were not reasonably designed to address the risks associated with its business model."

Further, Silver Point failed to enforce the policies and procedures it did have as to a Silver Point consultant who had routine access to material nonpublic information.
The failures "allowed for a largely, unfettered, unmonitored flow of information from the consultant to Silver Point's public trading side."

The charges stemmed from the role of Chaim Fortgang, who served as legal consultant for hedge fund Silver Point Capital but who has since died. Silver Point Capital held Puerto Rico general obligation municipal bonds that were in the bankruptcy process associated with the Puerto Rico Oversight, Management and Economic Stability Act. Fortgang, a prominent bankruptcy attorney, engaged in negotiations in the bankruptcy along with other attorneys representing bond-holding parties.

Fortgang also communicated with Silver Point Capital's professionals who traded municipal bonds and other securities, including Puerto Rico municipal bonds.

Silver Point's position is that Fortgang didn't communicate the contents of negotiations in the Puerto Rico bankruptcy to the traders but instead advised them on other legal matters.

The SEC and Silver Point filed a stipulation with the court last week asking the court to dismiss the case with prejudice without either party being awarded court or legal fees. Silver Point said it was waiving the right to recover legal or other fees and any other claims against the SEC.

"Silver Point seeks to always operate with the highest ethical standards and to maintain best-in-class compliance policies and procedures," Silver Point said in March after it reached a preliminary deal with the SEC. "We are focused on moving forward and maintaining a positive, productive and collaborative relationship with the SEC that we have worked to establish since the firm's inception."

The SEC did not provide a reason for dropping the case, but in its court filing  said the decision was based on the facts of this case and "does not necessarily reflect the commission's position in any other case."