by HFBOA
1. February 2011 01:06
Expert networking firms are now a target of the SEC, along with traders who act upon any inside information. So far expert networking firms that provide information via channel checks have not been subject to SEC inquiry. However, a concern in the future is at what point does information gathered become inside information. Asking a pharmacist at the local Walgreen’s how much of a drug is prescribed is ok. Asking the same question to the regional Walgreen’s VP could be an issue. Speaking with operations and sales people of companies is becoming a questionable area. There is huge uncertainty in this area. Be careful if the expert used to work at the company you are discussing, or if he or she were once a consultant for the company.
The Galleon case is the first insider trading case that has relied upon wiretaps for information gathering. Wiretaps remove the circumstantial nature of evidence gathered in insider trading cases and have the potential of turning civil cases into criminal cases, as the Department of Justice has authority to request wiretaps, not the SEC.
Officers of foreign companies may not be subject to equivalent insider trading or full disclosure requirements as their US counterparts. However, any information obtained from the foreign company must be treated in the same manner as information obtained from a US company.
A CCO can protect their firm by emphasizing training of its professionals at least annually. Also, know the firms experts, what steps does the expert networking firm take if the firm thinks it has received insider information? Create and document policies and procedures and make sure they are followed. From an SEC standpoint, not following written policies is nearly as egregious as having no policy at all. Look at the source of information in determining a trade. If it is at the least suspect, put the company on the do not trade list.
Kurt Koeplin, Chief Financial Officer, RAIL-SPLITTER CAPITAL MANAGEMENT, LLC