(HedgeCo.Net) The Securities and Exchange Commission today announced that a hedge fund advisory firm and a senior research analyst have agreed to settle charges related to their failures to detect insider trading by one of their employees.

The SEC’s order finds that San Francisco-based Artis Capital Management failed to maintain adequate policies and procedures to prevent insider trading at the firm. Artis Capital and specifically the employee’s supervisor Michael W. Harden failed to respond appropriately to red flags that should have alerted them to the misconduct. The employee, Matthew G. Teeple, was later charged along with his source David Riley as part of the SEC’s broader investigation into expert networks and the trading activities of hedge funds. Teeple and Riley also were charged by criminal authorities and have since received prison sentences.

Artis Capital agreed to settle the SEC’s charges by disgorging the illicit trading profits that Teeple generated for the firm totaling $5,165,862, plus interest of $1,129,222 and a penalty of $2,582,931. Harden agreed to pay a $130,000 penalty and is suspended from the securities industry for 12 months.

“Hedge fund advisory firms and supervisors must take all reasonable measures necessary to prevent insider trading, yet Artis Capital and Harden failed to take any action at all in response to Teeple’s highly profitable and suspiciously-timed trading recommendations,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.

Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit, added, “By disgorging the illicit profits that Artis Capital obtained through Teeple’s misconduct, this settlement ensures that the firm and Harden will not be rewarded for their negligence.”

Artis Capital and Harden consented to the SEC’s order without admitting or denying the findings.