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“The Ethics Hotline gives investors, hedge fund managers and others a proactive approach to minimizing the vulnerability of fraud and sends a message to employees and future investors that the firm is committed to maintaining ethical business practices”

“Although there is no guaranteed method for preventing insider trading, the implementation of an Ethics Hotline, gives hedge funds a set of eyes on the inside, and may be the best option for deterring such behavior,” said Kenneth S. Springer, a former FBI agent and President and Founder of Corporate Resolutions Inc.

The Ethics Hotline allows employees and others to anonymously report illegal or unethical behavior via telephone or email. The complaints are then vetted by Corporate Resolutions, an independent third party, and the findings are discussed with the firm and/or outside counsel to determine the legitimacy of the complaint and what necessary actions need to be taken. (Hedge funds may consider retaining the Ethics Hotline services through outside counsel potentially for privilege purposes.)

“The Ethics Hotline gives investors, hedge fund managers and others a proactive approach to minimizing the vulnerability of fraud and sends a message to employees and future investors that the firm is committed to maintaining ethical business practices,” said Mr. Springer. “For years, Corporate Resolutions Inc. has offered the Ethics Hotline to private equity firms as a system of checks and balances for portfolio companies and it has become a proven tool for investors who seek to avert malfeasance in the workplace.”

Whistleblower hotlines gained prominence through Sarbanes-Oxley which called for every publicly traded company in the U.S. to offer some form of a whistleblower component. And, whistleblower hotlines have also been gaining some popularity through the Dodd-Frank Act. It is likely that before the SEC acts on whistleblower tips (as a result of this legislation), companies will be required to demonstrate they exhausted internal means first. According to the Association of Certified Fraud Examiners (ACFE) 2010 Report to the Nation on Occupational Fraud and Abuse, tips were by far the most common detection method in catching nearly three times as many frauds as any other form of fraud-related surveillance.

In an economic environment when investment firms need to show investors they have adequate safeguards in place to prevent fraud, the Ethics Hotline is an easy solution for hedge funds and expert network firms. The hotline appeals to regulators who continue to scrutinize firms that are knowingly vulnerable to insider trading, violations of the Foreign Corrupt Practices Act (FCPA), and Ponzi schemes.

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(press release)

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