It was only a matter of time before the FBI raids and subpoena’s sent shivers through the spines of any money manager using expert networks to get an edge in whatever stocks they trade.And according to DealBook, that time has come.
Banks, hedge funds, mutual funds, and private equity firms have all pulled back from companies that they’ve used often, and for a long time to help their managers connect with industry insiders.
Expert networks are under intense scrutiny at the moment, in the wake of the sweeping insider trading probe that’s been toying with Wall Street businesses since November when three hedge funds – Level Global, Diamondback and Loch Capital – were stormed by the feds.
Now hedge funds like Och-Ziff and Balyasny have suspended their interaction with expert networks, and banks including Credit Suisse and Citi are reviewing their policies that govern how they interact with those firms.
“We’ve completely stopped using them, indefinitely, on the advice of our legal counsel,” someone who works for private equity firm told DealBook.
The FBI’s probe focuses on how money managers and expert networks trade information in a way that could be conceived of as insider trading, in a broader sense than traditional notions of the crime. And so far, the only people who have been arrested are experts and consultants – not hedge fund managers or bankers.
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