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Sunday, November 21, 2010

Were You Part Of An "Expert Network"? - Feds May Come Knocking

What is an "Expert Network"?  This may be one of the instances where you are better off wondering what they are.

According to Wikipedia an Expert Network is generally described as:
An Expert Network can be loosely defined as a network of people used to conduct any sort of professional research. Information providers within expert networks can be anyone from doctors to academics to any type of working or retired professional. Researchers can be anyone from investors to marketers to product manufacturers. Researchers derive value from the information they gather by connecting directly with primary information sources and industry experts.

Hedge funds were the early adopters, but usage of expert networks is now widespread among all types of institutional investors, including mutual fund advisers, pension funds, banks and private equity.
Sounds innocuous enough right?
According to published reports, Federal authorities are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, The Wall Street Journal reported on Saturday, citing people familiar with the matter.

One focus of the criminal investigation is whether independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds passed along nonpublic information, the Journal reported. Such companies set up meetings and calls between current and former managers and traders who want an investing edge. 

For the uninitiated, this is the practice of putting industry executives or even ex-employees of a company on the payroll for "color" or "insight".  In other words, the Good Old Boy Network, I scratch your back, you scratch mine.  The uber-rich get richer!

The newspaper said one firm under examination is Primary Global Research LLC of Mountain View, Calif., which connects experts with investors seeking information in the technology, health care and other industries.

The investigations have been conducted by the FBI, federal prosecutors in New York, and the Securities and Exchange Commission. Ellen Davis, spokeswoman for the U.S. Attorney's Office and SEC spokesman John Nester declined to comment.  According to reports: "Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter. The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say."

Remains to be seen whether anything will actually happen.
My back itches, how about yours?

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