There's A New Insider Trading Law In Massachusetts

OTS red tape regulation

The widespread use of expert networks among hedge fund managers has lead to a new insider trading law in Massachusetts.

Now hedge funds have to get a certificate to do their job.

Secretary of State William Galvin announced yesterday that if a hedge fund wants to use an expert network, it now has to get a certificate that: 

  • Says that the consultant will not provide any confidential information to the investment adviser
  • Describes what confidentiality restrictions apply to the expert network “consultant” (generally a person who used to work at the firm in question or provides some service to them, ie someone who develops products for the new Apple iPhones)
  • Discloses the dates of the consultations

This law, if it’s followed, should thwart at least some of the sketchier expert network behaviour we’ve heard of, such as a hedge fund manager flying to London to meet with a “consultant” hired by an expert network in person. The consultant had just quit a firm during the previous week and the manager did not want to speak with him over the phone or via email. Their only communication was (rumoured to be) a meeting on the streets of London.

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