The Securities and Exchange Commission charged a hedge fund and four hedge fund portfolio managers and analysts with illegally traded on confidential information obtained from technology company employees moonlighting as expert network consultants.
Even bigger news is that the SEC came up with this fancy new logo to brand its expert network investigations and prosecutions.
“It is illegal for company insiders who moonlight as consultants to sell confidential information about their companies to traders, and it is equally illegal to buy that corruptly obtained information and trade on it,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
Expert networks are not inherently illegal. Of course it’s legal to obtain advice and analysis through experts. It becomes illegal to trade when that material nonpublic information is obtained in violation of a duty to keep that information confidential.
It would be perfectly legal to have someone look at the traffic count for a store to use as a measure of whether sales are up or down. Legend has it that some investors used satellite photos of Wal-Mart parking lots to help with their earnings estimates.
In this case, the SEC is accusing the experts of leveraging insiders to reveal sales forecasts, revenues, and other detailed inside information about their companies. There will be questions about the information: is it material nonpublic information? and did the parties have a duty to keep the information confidential?
The cases should be interesting as an evolution of insider trading prosecutions. The new logo just makes it more interesting.
- Complaint – SEC v. MARK ANTHONY LONGORIA, DANIEL L. DEVORE, JAMES FLEISHMAN, BOB NGUYEN, WINIFRED JIAU, WALTER SHIMOON, SAMIR BARAI, JASON PFLAUM, BARAI CAPITAL MANAGEMENT, NOAH FREEMAN, and DONALD LONGUEUIL,
- SEC Charges Hedge Fund Managers and Traders in $30 Million Expert Network Insider Trading Scheme – SEC Press Release
- News Conference Remarks by Enforcement Director Robert Khuzami