iI will tell the secret to you, to you, only to you. Come closer . . . it works every time. Now you know. Don’t Listen.1
Introduction
To some, recent events hark to the Salem witch trials. To others, it is simply comeuppance after a recession with far too few consequences for those who drove us off the proverbial cliff. Either way, the U.S. Securities and Exchange Commission (SEC) are in the midst of a prosecution frenzy, coming down hard on insider trading. Their targets are big and small – from billionaire Raj Rajaratnam to Walter Shimoon, an employee at a technology firm who made $22,000 for trading inside information about the Ipad.2 Recently, one particular group has found itself in the SEC’s crosshairs: expert networks.3
Expert networks have a reason to be afraid. Since August 2009, at least 70 people have been charged with insider trading by the Manhattan U.S. Attorney’s office. The office has won more than 60 convictions4 and some lead directly to expert network firms.
On November 2012, federal prosecutors charged Matthew Martoma with the “most lucrative insider trading scheme ever.5” Mr. Martoma was a former portfolio manager at CR Intrinsic, a unit of SAC Capital Advisors – the hedge fund helmed by billionaire Steven A. Cohen.6 Mr. Martoma made more than $276 million dollar by trading illegal information he obtained from Dr. Sidney Gilman, who was in charge of clinical trials for an Alzheimer drug developed by the Elan Corporation and Wyeth.7 Dr. Gilman was also consultant for Gerson Lehrman Group (GLG) – an expert network firm - and earned a $1,000 per hour for his consultation.8 According to the complaint, Mr. Martoma and Dr. Gilman circumvented GLG’s compliance mechanisms and exchanged material non-public information about the clinical drug trials.9 Although GLG was not mentioned in the complaint, “this is cold comfort to the expert network industry, which is once again being associated with insider trading.10”
Part II: Background and History of Expert Network Firms
This article explores the role of expert networks in the government’s recent prosecutions. First, the article will document the rise of expert network firms and their significance for professional traders. Second, it will examine the reasons why expert network firms have come under the focus of the SEC. Third, it will discuss the response of expert networks, Wall Street and other stakeholders. Finally, the paper will explore the vulnerabilities clients risk when using expert networks and whether these dangers can be reduced.
Expert network firms are part of the financial market’s research arm. They provide data and analysis to investors, such as customized polls, surveys and weekly teleconferences to discuss market trends.11 However, the bulk of their business relies on providing consultants to the industry.
Crudely put, expert networks firms are akin to matchmakers. But instead of matrimonial prospects, they match professional investors who subscribed to their services with expert consultants. The firms schedule the parties’ conference calls or meetings where advice and information is exchanged.
Consultants come from various fields such as technology, medicine and governmental affairs.12 Consultants explain how industries work, deliberate trends, offer insights and explain jargon. Many of them are professionals in their respective fields, like sales executives, managers, midlevel corporate executives, doctors and even large purchase order customers.13 Some are company employees the investor is targeting.14
Expert networks fit the “mosaic theory” of information gathering,15 which assembles pieces of public and private information that, viewed altogether, should give investors the full picture for conducting business. But a word of caution: if “any one of the mosaic pieces is, in itself, too revealing, the [SEC] looks askance.16”
The origins of expert networks have their roots in the SEC’s adoption of the rule known as Regulation Fair Disclosure (Regulation FD) in 2000.17 Originally, research in Wall Street was done by analysts who culled information much like a news reporter would. This practice eventually led to a phenomenon known as “selective disclosures,” where material non-public information about companies were promulgated only to selected groups of individuals, such as a securities analysts or selected institutional investors, before the same information was given to the general public in violation of insider trading laws.18 “Where this has happened, those who were privy to the information beforehand were able to make a profit or avoid a loss at the expense of those kept in the dark [and led] to a loss of investor confidence in the integrity of [] capital markets.19” Regulation FD required that when a public company’s senior officials or other employees disclose material non-public information to selective individuals, they must simultaneously disclose such information to the public (or in cases of unintentional disclosures, disclose the information promptly).20
Regulation FD’s passage altered how investors culled corporate intelligence.21 At the same time, hedge funds and mutual funds ascended on Wall Street. Aided with technological developments, they changed the business landscape drastically. Trades were transacted faster and in higher volumes.22 Using analysts, as the industry previously had, did not fit in this new world order. As a result, expert networks became investors’ primary research tool.23 According to Sanford Bragg, chief executive officer of Integrity Research Associates, LLC, “the ultimate [investing edge] is insider information, so you want to get as close to the line as possible without crossing the line.24” Expert network firms gave investors the competitive edge they had prior to Regulation FD.25
In 2001, immediately after Regulation FD was enacted, there were only eight expert network firms.26 Today, there are about 40.27 The largest and oldest is Gerson Lehrman Group (GLG), which dominates 60% of the market and serves more than 850 clients around the world while retaining about 250,000 experts.28 GLG clients pay an average of $170,000 a year for their subscriptions and access to these consultants.29
One-quarter of Wall Street’s budgets went to expert network firms in 2009.30 In 2010, the industry raked in a total of $450 to $500 million in profit.31 One poll showed that 40% of investors considered them “very” or “extremely” important.32” Indeed, GLG was known as “New York’s ‘most valuable company no one outside of Wall Street has ever heard of.’”33
Consultants earn $200-$1,000 an hour to meet with traders.34 Former Washington lobbyist Paul Equale, who is now a GLG consultant, is paid $600 an hour for passing advice and information to Wall Street. He has done so 650 times and has earned about $400, 000.35
Expert networks are also going global. There are eight based in London36 and demand for them is increasing in Asia.37 Moreover, expert networks are expanding their client base from hedge funds and mutual funds to firms such as those in life sciences.38 One commentator noted that most expert network firms may shift to micro-consulting while others foretell competition with big management-consulting firms.39 In their defense, expert networks claim they merely provide an essential research service to portfolio managers, analysts, institutional investors and other investment managers,40 all of whom view information as a valuable commodity.41
Part II: The Fallout Regarding the Expert Networks
Expert network firms have long operated in the shadows of Wall Street. Although reports of abuse in the industry go back to 2005,42 it is only recently they have grabbed headlines. The government – smarting from accusations that it did not do enough to hold Wall Street accountable for the recession – cracked down on insider trading and has now focused on the role of expert networks. Hedge funds - which are characterized as unregulated, super competitive environs where rapid trades and multimillion dollar salaries abound43 - are particularly scrutinized. The SEC has posited that for a minority of hedge funds, trading using illegal information has become a “business model.44” By focusing on the complicity of expert networks, the SEC is signaling “its willingness to pursue all participants in the insider trading shame.45”
Insider trading “refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.46” The government argues that insider trading undermines both investor confidence and the integrity of the securities market. The federal government’s bluntest tools to combat insider trading is §10(b) of the Securities Exchange Act and the SEC rule known as§10b-5.[47] §10b is the antifraud provision of the Exchange Act and provides that:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange [. . .]
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement [], any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.48
Meanwhile, Rule §10b-5 prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.49"
Thus, to establish a Rule 10b-5 claim, plaintiffs (including the SEC) must show (i) materiality of the non-public information (ii) misrepresentation or omission of the material fact or the use of an act or practice in the course of business which operates or would operate as a fraud or deceit upon any person (iii) scienter and (v) "in connection with" the purchase or sale of securities.50
With regard to §10b-5, the SEC, in Texas Gulf Sulfur (TGS), originally advocated for the classical theory that anyone who has material, non-public information must either disclose that information or abstain from trading.51 But the U.S. Supreme Court rejected the TGS approach and in Chiarella v. United States,the court heldthat a duty to disclose material non-public information arises only if there is a relationship of trust and confidence between parties to the transaction.52 Then in U.S. v. O’Hagan the Court validated the misappropriation theory found in Chiarella’s dissent, which extended securities fraud liability from corporate “insiders” to outsiders and held that an individual who receives material non-public information in breach of a relationship of trust and confidence with the source and uses that information to trade without disclosure to the latter, is liable for insider trading.53 The source of the information may also be liable. This concept under the misappropriation theory where both the source and recipient may be found liable is called tipper/tippee liability.54
It is in the murky area of tipper/tippee liability where most experts and their clients are entangled. For example, in July 25, 2012, founder of Broadband Research LLC, John Kinnucan, pled guilty to conspiracy and securities fraud.55 Kinnucan obtained material non-public information from employees of different public companies and passed it on to his clients.56 Companies involved included SanDisk Corp, F5 Networks Inc., and OmniVision Technologies Inc., and information included quarterly revenues.57 Kinnucan compensated his sources in different ways, including giving them confidential information about other technology companies.58
The SEC claims that “selling expertise is one thing. Selling illegal information is another.59” Indeed, insider trading is particularly sharp when some of the experts are current employees. In SEC v. Longoria, the government alleges that, unbeknownst to their companies, four employees sidelined as consultants with Primary Global Research LLC (PGR) and sold their access to material non-public information to PRG officers and its clients.60 The employees were paid “hundreds of thousands of dollars in purported consulting fees.”61
And the charges just keep coming.62 In 2010, six employees of PRG were indicted for insider trading.63 Dr. Yves Benhamou, who worked as a consultant with Guidepoint Global, was charged with tipping a hedge fund about a hepatitis C drug, which led to the fund dumping six million shares of the company conducting the trials.64 And in 2011, PRG was tangled with the Raj Rajaratnam case.65 The firm has since closed down.66 Also in 2011, the FBI raided Barai capital management and charged analysts there of profiting $30 million from insider trading using expert network firms.67
Part III: The Response From Expert Network Firms, Investors, and Employers, as well as Outstanding Issues
Expert network firms are now playing defense. Some adopted policies to prevent their consultants from sharing non-public information with their clients.68 Some implemented new systems to detect conflicts of interest and/or required consultants to sign a contract listing types of prohibited conversations.69 GLG also prohibits consultants from giving information about their own companies and requires consultants to complete compliance tutorials online.70 Finally, GLG limits telephone sessions between a consultant and a client to three per year, unless the former has explicit consent from employers.71
However, some critics claim that compliance remains to be the “wild west.72” In a 2011 survey, eight out of 10 industry insiders agreed that expert network firms “generally don’t have the compliance standards” required to prevent insider trading.73 Bob Nguyen, a former employee at PGR who pled guilty to insider trading, told the judge that a goal of his firm was “to recruit experts who would disclose confidential information to its hedge fund clients.74” Indeed, even industry models like GLG fall short on standards. One UK-based consultant reported that the company provides a “15 minute[] ethics training but its very basic. They tell you ‘don’t say anything if it is confidential.’ It is that level. I don’t think there is much vetting. It is buyer beware’.75” Moreover, despite the availability of recording consultations or compliance chaperoning provided by the expert networks, it remains on the clients to partake in these features.76 Basically, observers claim that “most compliance controls [promulgated by expert network firms] can be circumvented if someone is intent on wrong doing.77”
Although expert network firms claim they perform due diligence, the intensity of federal prosecutions may soon lead to mandatory monitors of calls between consultants and clients. This may take the form of either recorded telephone calls or the hedge funds’ legal or compliance officer to sit in on conferences to ensure that illegal information is not mentioned.78 Perhaps, to enhance the benefit of an objective monitor, expert networks should outsource their compliance services to law firms or mediators. But the expert network industry must respond quickly: since PGR’s prosecution, business in the industry is down 40%.79
Wall Street has also elected to buttress their defensive measures against the abuse of the expert network relationships. Some hedge funds have ceased their use of expert network firms entirely.80 In the medical industry, medical ethicists have also called for physicians to cease consulting.81 Other firms require consultants to sign a contract promising they would not violate securities laws.82 However, a better policy would be to institute policies prohibiting hedge funds who want information about a company from consulting with an expert who is a company employee. This would require expert network firms or hedge funds to improve background checks on consultants.83 Firms have also sought guidelines from the SEC.84 But, Richard Baker, president of the Managed Funds Association (MFA), pointed out that “[t]he trouble is the referees aren’t’ quite clear where those lines are right now.85”
Indeed, it is posited that the SEC may be unwilling to provide such guidelines because “they’re trying to get a wide range of conduct.86” Indeed, although Congress have proposed laws which would codify insider trading, the agency “prefer[s] a common law approach, on the theory that it will be less fixed – thus a more worrisome – deterrent.87”
Meanwhile, angered that their secrets may be for sale, some companies have instituted a blanket ban and prohibit employees from becoming consultants.88 Others developed a “do not call” list of employees who expert networks cannot recruit.89 But, this approach only works if companies are aware when their employees are sidelining as a consultant.
Part IV: Conclusion
The temptation for both trader clients and consultants to cheat is great. On one hand, traders may push the legal boundaries in their thirst for more insider knowledge. Former hedge fund analyst Danielle Chiesi compared trading business information as an “orgasm" and admitted to making $4 million dollars from illicit trades using expert networks.93 On the other hand, consultants want to pad their salaries as much as possible: some suffering from income envy or just crave the satisfaction of “wanting to be important.94”
It also doesn’t help that profits from consulting is made quick and easy. John Ansell, a pharmaceutical consultant for GLG who has participated in over 200 consultations, said “I told a bank something based on a rumour . . . it can happen inadvertently.95” Meanwhile, Winifred Jiau, a PGR consultant, was convicted for providing hedge funds traders with confidential corporate information. She earned $200,000 in fees and prosecutors alleged that her conversations with traders took less than four minutes.96 Ms. Jiau was sentenced to four years in prison and, in a decision which should put all expert networks on notice, the court – when pondering for a “just” sentence for Ms. Jiau – did not base it on her $200,000 fees, but on the profits the hedge funds derived from her tips – which ran to the millions of dollars.97
Whatever one’s view is regarding the role of expert networks, there is a market for them. Proponents of the industry argue that without these firms, “consultations” may go deeper into the shadows over “beers or expensive dinners – without the compliance efforts and audit trails that the firm provides.98” This is particularly true with the rise of social networks such as LinkedIn and Quora where networking is facilitated.99 One GLG executive complains that even though a few people may break the law, the industry – by and large – is law abiding: “How many people have gotten raped and killed after using Craigslist?. . . You can’t go blaming Craigslist for that.100”
Craigslist notwithstanding, it is inevitable that further regulation and further federal probes of the industry will occur. Congress has already taken notice. On April 2012, it enacted the Stop Trading on Congressional Knowledge Act (STOCK Act), which prohibits insider trading by members of Congress and other government employees.101 The Act also requires reporting from the Comptroller general regarding political expert network firms.102 Moreover, the SEC has publicly announced that it was monitoring the hedge fund industry for “aberrational performance.” Robert Khuzami, the SEC’s director of enforcement, declared, “‘anybody who is beating the market indexes by 3% and doing it on a steady basis’ could be a suspect” of benefitting from illegal tips.103
Thus, the question remains whether Wall Street, like Ulysses, will heed the warnings and enact preventive measures to avoid the temptations of expert network firms, or will it – like unfortunate sailors of yore – sail towards their own destruction? To Mr. Khuzami, the latter is probably more likely: “People are greedy,” he says, “they think they won’t get caught.104”
[1]Margaret Atwood, Siren Song, in Selected Poems 1965-1975 (1987), available at http://www.poetryarchive.org/poetryarchive/singlePoem.do?poemId=98. In Greek mythology, the Sirens were dangerous creatures who lured sailors with their enchanted singing to wreck their ships or drown. Ulysses, the Greek hero, is the only one who heard their song and survived: He ordered his crew to stuff their ears with wax and tie him up on the ship’s mast. Siren, Encyclopedia Britannica (last visited Dec. 23, 2012), http://www.britannica.com/EBchecked/topic/546538/Siren.
[2]Aaron Smith and Hussein Saddique, Galleon Manager Rajaratnam Sentenced, CNNMoney.com, Oct. 14, 2011, http://money.cnn.com/2011/10/13/news/companies/insider_trading_raj_rajaratnam/index.htm; Walter Shimoon Pleads Guilty to Leaking iPad Secrets for Money, Reuters, July 6, 2011, available at http://www.huffingtonpost.com/2011/07/06/ipad-insider-trading-probe_n_891147.html
[3]Noam Noked, Insider Trading Developments - Summer 2012, The Harvard Law School Forum on Corporate Governance and Financial Regulation Blog (Oct. 8, 2012, 9:04 AM), http://blogs.law.harvard.edu/corpgov/2012/10/08/insider-trading-developments-summer-2012/; Evelyn M. Rusli, Next Up, A Crackdown on Outside-Expert Firms, N.Y. Times, May 11, 2011, http://dealbook.nytimes.com/2011/05/11/next-up-a-crackdown-on-outside-expert-firms; Christopher Condon et al., US trading Probe Puts research, Expert Networks in Spotlight, Bloomberg, Nov. 24, 2010, available at http://www.bloomberg.com/news/2010-11-24/u-s-insider-trading-probe-puts-research-expert-networks-into-spotlight.html.
[4]Patricia Hurtado, Broadband Research’s Kinnucan Pleads Guilty in Tip Case, Bloomberg, Jul. 26, 2012, available at http://www.bloomberg.com/news/2012-07-25/broadband-research-s-kinnucan-says-he-will-plead-guilty-1-.html; Peter Lattman, Guilty Verdict Reached in Another Insider Trading Case, N.Y. Times, Sept. 20, 2011, http://dealbook.nytimes.com/2011/09/20/insider-trading-investigation-yields-another-guilty-verdict/.
[5]Peter Lattman, Insider Inquiry Inching Closer to A Billionaire, N.Y. Times, Nov. 20, 2012, http://dealbook.nytimes.com/2012/11/20/federal-prosecutors-charge-former-sac-capital-trader/
[6]Sanford Bragg, Expert Networks and the Most Lucrative Insider trading Case Ever, Integrity Research Blog (Nov. 21, 2012, 8:38 PM), http://www.integrity-research.com/cms/2012/11/21/expert-networks-the-most-lucrative-insider-trading-case-ever.
[7]Id.
[8]Id.
[9]Id.; Complaint, U.S. v. Martoma, No.12-mag-2985 (S.D.N.Y. Unsealed Nov. 20, 2012); Complaint, SECv. CR Intrinsic Investors, LLC,No. 12-cv-8466 (S.D.N.Y. filed Nov. 20, 2012).
[10]Id.
[11]Id.
[12]The political intelligence industry makes about $100 million a year. Investors pay up to $240,000 a year for access to Washington experts. More than 2, 000 people are employed by expert-network companies in Washington DC alone. Brody Mullins and Susan Pulliam, Hedge Funds Pay Top Dollar for Washington Intelligence, The Wall Street Journal, Oct. 4, 2011, http://online.wsj.com/article/SB10001424053111904070604576514791591319306.html.
[13]Emily Chasan and Liana Baker, Analysis – US Trading Probe Reveals The Temptations For Experts, Reuters, Jan 21, 2011, available at http://www.reuters.com/article/2011/01/21/us-experts-funds-idUSTRE70K6AS20110121; Andrew Caffrey, Expert Networks Give Investors An Edge, Boston Globe, Jan. 15, 2012, http://www.boston.com/business/markets/articles/2012/01/15/expert_networks_give_investors_an_edge.
[14]McDonald, supra note 12.
[15]Andrew Ross Sorkin, Just Tidbits, or Material Facts for Insider Trading?, N.Y. Times, Nov. 29, 2010, http://dealbook.nytimes.com/2010/11/29/just-tidbits-or-material-facts-for-insider-trading.
[16]Roger Lowenstein, The War on Insider Trading: Market Beaters Beware, N.Y. Times Magazine, Sept. 22, 2011, http://www.nytimes.com/2011/09/25/magazine/in-the-insider-trading-war-market-beaters-beware.html?pagewanted=all&_r=0.
[17]Caroline F. Hayday, Shedding Light On Wall Street: Why Reg. F.D. Is Appropriate In The Information Age, 81 B.U.L. Rev. 843, 845-6 (2001).
[18]Id.
[19]Final Rule:SelectiveDisclosure and Insider Trading, Exchange Act Release No. 33-7881 (August 15, 2000), available at
http://www.sec.gov/rules/final/33-7881.htm.
[20]Id.
[21]Nathaniel Burney,Insider Trading, Expert Networks, and a Big Honking Due Process Violation, Burney Law Firm Blog (Mar. 2, 2011, 12:10 PM), http://burneylawfirm.com/blog/2011/03/02/insider-trading-expert-networks-and-a-big-honking-due-process-violation.
[22]Id.
[23]Take it From An Expert?, supra note 12.
[24]Brody Mullins and Susan Pulliam, Hedge Funds Pay Top Dollar for Washington Intelligence, The Wall Street Journal, Oct. 4, 2011, http://online.wsj.com/article/SB10001424053111904070604576514791591319306.html.
[25]Id.
[26]Anne H. Wright, Compliance Issues Raised by Expert Networks, Wrightings (Dec. 9, 2010), http://wrightingsblog.wordpress.com/2010/12/09/compliance-issues-raised-by-expert-networks.
[27]Id.
[28]Id.; Simon Goodley, Wall Street's Secretive 'Expert Networks,' The Guardian, Mar. 4, 2011, http://www.guardian.co.uk/business/2011/mar/04/sec-expert-networks-hedge-funds.
[29]Linking Expert Mouths with Eager Ears, The Economist, June 16, 2011, http://www.economist.com/node/18836146.
[30]Take it From An Expert?, supra note 12.
[31]Anthony Effinger et al., Under Scrutiny: Expert Networks, Bloomberg Businessweek Magazine, Dec. 2, 2010, http://www.businessweek.com/magazine/content/10_50/b4207056544997.htm
[32]McDonald, supra note 12.
[33]Goodley, supra note 28.
[34]Chasan, supra note 16.
[35]Mullins, supra note 23.
[36Goodley, supra note 28.
[37]Linking Expert Mouths with Eager Ears, supra note 29.
[38]Id.
[39]Id.
[40]Duff McDonald, How Expert Networks Came to Dominate Wall Street, CNNMoney.com,Nov. 22, 2010, http://finance.fortune.cnn.com/2010/11/22/how-expert-networks-came-to-dominate-wall-street; Take it From an Expert? A Look Inside the Expert Network Industry,Advent.com,http://www.advent.com/collateral/ii_expert.pdf
[41]Harriet Agnew, Managers Dig Deep for Market Intelligence, Financial News, Nov. 7, 2011, http://www.efinancialnews.com/story/2011-11-07/hedge-funds-market-intelligence.
[42]Illicit activities of expert network consultants were reported when the Seattle Times uncovered 26 cases where doctors tipped off Wall Street firms regarding ongoing drug research. Luke Timmerman and David Heath, Drug Researchers Leak Secrets to Wall Street, Seattle Times, Aug. 7, 2005, http://seattletimes.com/html/businesstechnology/drugsecrets1.html.
[44]Adam Shell and Matt Krantz, Insider Trading Investigation Questions Expert Networks, USA Today, Nov. 26, 2010, http://usatoday30.usatoday.com/money/markets/2010-11-26-expertnetwork26_ST_N.htm; Lowenstein, supra note 19.
[45]Lowenstein, supra note 19.
[46]Shell, supra note 41.
[47]Insider Trading, U.S. Securities and Exchange Commission, http://www.sec.gov/answers/insider.htm (last visited Feb. 28, 2013).
48Peter J. Henning, The Evolving Contours of Insider trading, N.Y. Times, July 30, 2012, http://dealbook.nytimes.com/2012/07/30/the-evolving-contours-of-insider-trading.
[51]Private plaintiffs have the additional burden of establishing (i) Standing (ii) Reliance; (iii) Loss Causation; and (iv) Damages.
[52]SEC v. Tex. Gulf Sulphur Co., 401 F.2d 833 (2d Cir. N.Y. 1968).
52]Chiarella v. United States, 445 U.S. 222 (U.S. 1980).
[53]United States v. O'Hagan, 521 U.S. 642 (U.S. 1997).
[54]A tipper of material non-public information is liable under the misappropriation theory if (i) she possessed such information by acquiring it via a violation of a relationship of trust and confidence (ii) she disclosed the information to others and received a personal benefit (iii) she did not disclose her intention to disclose to the source and (iv) someone who received the tip from her trades used such information. Meanwhile, tippee liability can occur if the individual (i) receives material, non-public information from another (ii) she knew or should have known that the source was breaching a duty of a relationship of trust and confidence by providing the information and (iii) she trades on the information. See Rita M. Glavin et al., The Expanding Scope of Insider Trading Liability, Financial Fraud Law Report, June 2011, available at http://www.velaw.com/resources/TheExpandingScopeInsiderTradingLiabilityFinancialFraudLawReport.aspx.
[55]Patricia Hurtado, Broadband Research’s Kinnucan Pleads Guilty in Tip Case, Bloomberg, July 26, 2011, available at http://www.bloomberg.com/news/2012-07-25/broadband-research-s-kinnucan-says-he-will-plead-guilty-1-.html; U.S. v. Kinnucan, No. 12-cv-163 (S.D.N.Y. filedFeb. 17, 2012).
[56]Id.
[57]Id.
[58]Id.
[59]McDonald, supra note 12.
[60]SEC v. Mark Anthony Longoria, et al., No. 11-CV-0753 (S.D.N.Y.)(JSR).
[61]Press Release, The Securities and Exchange Commission, SEC Brings Expert Network Insider Trading Charges: Moonlighting Employees Passed Company Secrets to Hedge Funds and Others (Feb. 3, 2011), available athttp://www.sec.gov/news/press/2011/2011-38.htm.
[62]Gus Lubin, How Many of These Expert Networks Are Being Investigated By The Feds?, Business Insider, Nov. 23, 2010, http://articles.businessinsider.com/2010-11-23/wall_street/30092462_1_expert-networks-industry-don-chu.
[63]Kathleen Pender,Four More Arrests in Insider Trading Case Involving Primary Global Research, S.F. Gate, Dec. 16, 2010, http://blog.sfgate.com/pender/2010/12/16/four-more-arrests-in-insider-trading-case-involving-primary-global-research.
[64]Steve Eder And Jean Eaglesham, Doctor in Insider Case Worked for Guidepoint Global, The Wall Street Journal, Nov. 9, 2010, http://online.wsj.com/article/SB10001424052748703957804575602943099934522.html
[65]Andrew Ross Sorkin, Knowledge Is Money, But the Peril Is Obvious, N.Y. Times, Nov. 26, 2012, http://dealbook.nytimes.com/2012/11/26/knowledge-is-money-but-the-peril-is-obvious/.
[66]Id.
[67]Press Release, The Securities and Exchange Commission,SEC Charges Hedge Fund Managers and Traders in $30 Million Expert Network Insider trading Scheme (Feb. 8, 2011), available at http://www.sec.gov/news/press/2011/2011-40.htm.
[68]Linking Expert Mouths With Eager Ears, supra note 29.
[69]See Take it From an Expert?, supra note 40; Wright, supra note 26.
[70]Id.
[71]Chasan, supra note 16.
[72]Effinger, supra note 31.
[73]Steve Eder and Jenny Strasburg, Hedge Funds Seek Clarity on ‘Expert Networks’, The Wall Street Journal, Feb. 1, 2011, http://online.wsj.com/article/SB10001424052748703439504576115920365149918.html.
[74]Chasan, supra note 16.
[75]Goodley, supra note 28.
[76]Bragg, supra note 6.
[77]Id.; See also Bruce Karpati, Chief, SEC Enforcement Division’s Asset Management Unit, Speech at the Regulatory Compliance Association (Dec. 18, 2012), available at http://www.sec.gov/news/speech/2012/spch121812bk.htm.
[78]This alternative seems a reasonable one particularly with the recent successes of wiretap evidence in insider trading prosecutions. Breen, supra note 43; Peter J. Henning, The Winning Record of Prosecutors on Insider Trading, N.Y. Times, Aug. 21, 2012, http://dealbook.nytimes.com/2012/08/21/the-winning-record-of-prosecutors-of-insider-trading.
[79]Lowenstein, supra note 19.
[80]Take It From An Expert?, supra note 12; Linking Expert Mouths With Eager Ears, supra note 29.
[81]Ben Hallman, Doctors Who Advise Wall Street Investigators Operate in Ethical Grey Zone, The Huffington Post, Nov. 27, 2012, http://www.huffingtonpost.com/2012/11/27/doctors-consult-wall-street-expert-networks_n_2200618.html.
[82]Wright, supra note 26.
[83]Currently, professionals can sign up with GLG without a background check. Linking Expert Mouths With Eager Ears, supra note 29.
[84]Rachel Wolcott, Funds Auditing expert network relationships, asking for guidance, Reuters, Feb.3, 2012, available at http://blogs.reuters.com/financial-regulatory-forum/2012/02/03/funds-auditing-expert-network-relationships-asking-for-guidance/.
[85]Id.
[86]Id.
[87]Lowenstein, supra note 19.
[88]Goodley, supra note 28. See also Chasan, supra note #. Dell, for example, has a code of conduct which “strictly prohibits” secondary employment for its employees. Daniel DeVore, a former global supply manager at the company, pled guilty to insider trading where it was found that he had made about $145,000 as an expert network consultant. Id.
[89]Wright, supra note #.
[90]Chasan, supra note #.
[91]Id.
[92]Take It From An Expert?, supra note 12.
[93]James Bandler, Dangerous Liaisons At IBM: Inside The Biggest Hedge Fund Insider-Trading Ring, CNNMoney.com, Jul. 26, 2010, http://money.cnn.com/2010/07/06/news/companies/ibm_insider_trading.fortune/index.htm; Anthony Effinger et al., Woman Who Sank Galleon Was Beauty-Queen-Turned-Analyst Insider, Bloomberg, Nov. 22, 2009, available at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apTuckYhnYYU.
[94]Chasan, supra note 16; Caffrey, supra note 16.
[95]Goodley, supra note 28.
[96]Chasan, supra note 16.
[97]Walter Pavlo, Winifred Jiau Gets 4 Years in Prison, And What A Journey, Forbes, Sep. 21, 2011, http://www.forbes.com/sites/walterpavlo/2011/09/21/winifred-jiau-gets-4-years-in-prison-and-what-a-journey/.
[98]Sorkin, supra note 67.
[99]Id.
[100]Linking Expert Mouths with Eager Ears,supra note 29.
[101]Stephanie Condon, Obama signs STOCK Act to ban "Congressional Insider Trading,” CBS News (Apr. 4, 2012, 12:33 PM), http://www.cbsnews.com/8301-503544_162-57409314-503544/obama-signs-stock-act-to-ban-congressional-insider-trading/
[102]Noked, supra note 3.
[103]Lowenstein, supra note 19.
[104]Id.
