If the SEC is really interested in stopping "insider trading", once the SEC finds the sources of the inside information, which has been sold to any advisor, the SEC should prosecute - to the fullest extent of the law - those sources that have provided the inside information .
One of the biggest motivations for hedge funds (and, for that matter, all actively managed institutional fund advisors) to buy "inside information" is that they can do so using their clients’ brokerage commission dollars to pay for the inside information (using order flow and soft dollar brokerage commissions).
If this kind of transaction is conducted with a 'full-service broker' the soft dollar portion of the commission is not disclosed and it is not transparent. (In the industry such arrangements are known as bundled undisclosed soft dollar brokerage arrangements.) This lack of transparency and lack of disclosure makes the discovery of the violation of insider trading laws [including Reg. FD] very difficult for regulators.
New York Attorney General, Eliot Spitzer's investigations of the brokerage industry in the late 1990's revealed the significance of undisclosed soft dollar commission arrangements. Because of the discoveries during Spitzer's investigations, the SEC was forced to implement the Global Research Analyst Settlement on several large brokerage firms where it had discovered conflicts-of-interest (where advisors' clients' brokerage commissions were used to influence brokerage & analyst favors and create conflicts-of-interest (e.g. late trading in exchange for order flow, mutual fund shelf space for order flow, IPO hot IPO allocation for order flow, early release of analyst opinions for order flow, and etc.).
Later, after a couple years considering how best to regulate soft dollars, former Chairman of the SEC, Christopher Cox was so frustrated at attempting to regulate undisclosed soft dollar brokerage that he sent letters to Senator Christopher Dodd and to Congressman Barney Frank requesting that Congress "repeal or substantially revise Section 28(e) . . . ." which is the law that defines the appropriate uses of institutional client's brokerage commissions.
To see the full text of the letter SEC Chairman Cox sent to
Please note: Chairman Cox's letter includes a computational error arising out of a semantic distinction. He says that in 2006 advisors directed almost one billion dollars of their clients’ soft dollar brokerage commissions. In fact, for 2006 the true estimate of institutional advisor directed clients' soft dollar brokerage commissions exceeded ten billion dollars of clients' commissions.