NewJerseyNewsRoom.com reported on November 26, 2010 in “Somerset resident was part of the ‘expert network’ being investigated by FBI” that a New Jersey man was arrested around Thanksgiving 2010 in a highly publicized insider trading investigation focusing on hedge funds and mutual funds taking advantage of insider information from expert network firms. The man allegedly used his employer’s contacts to pass along non-public information to his clients.
The FBI arrested the man, age 56, of the Somerset section of Franklin Township, in New Jersey, for one count each of securities fraud and wire fraud. Until his arrest, the man was paid $72,000 a year to follow Asian technology companies.
Insider trading is a serious white collar crime that generally occurs when someone trades on or tips another to trade on, material non-public information, to the disadvantage of the public not privileged to the information. Expert networks (research firms) developed when companies implemented communications policies to prevent disclosure of material nonpublic information in compliance with Regulation FD. Expert networks linked analysts and portfolio managers with people who provided specialized knowledge on an industry, region, or other topic. Because of weak markets, financial companies used research firms to get at all possible information when making investment decisions. Investments firms spent $364 million on expert networks in 2009. For consultations, managers paid about $350 to $450/hour, and sometimes $1000/hour, according to the Financial Times on December 6, 2010 in “Insider trading probe prompts risk scrutiny”.
Before Regulation FD, analysts and investors used to call around at public companies to ask for information they could not get from top executives, and company information got disclosed to a select few individuals versus the mass market. With communications policies, a company protected financial information by ensuring all spokespeople were familiar with publicly disclosed company information to stay current on information not publicly disclosed. A communications policy required persons not designated as spokespeople contacted by an outsider to refer the person to the spokespeople so no information would be disclosed until it was announced to everyone.
White collar crimes carry great penalties. Besides having to pay back all the money gained illegally, a conviction can result in heavy fines, putting a person into bankruptcy. Even after filing bankruptcy, some debts resulting from criminal actions may not be dischargeable, leaving a person in debt for life. Besides monetary payments, there may be significant prison time.
When charged with a white collar crime, it is important to have proper legal representation to protect rights. A criminal conviction can ruin a defendant’s chances of having any type career. An experienced criminal defense attorney may strategize to negotiate reduced sentencing and penalties in return for cooperation or plead not guilty to ensure the prosecution proves every element of its case.
