Expert Networks and Insider Trading: An Introduction and Recommendation

May 21, 2013 Leave a comment

Expert Networks and Insider Trading: An Introduction and Recommendation

Daniel H. Jeng Boston University School of Law

May 7, 2013
Review of Banking and Financial Law, Forthcoming

Abstract: 
An expert network enabled the largest insider trading scheme ever discovered and charged by the Securities and Exchange Commission (“SEC”). As complex information webs circulating money for information, expert networks are significant and relevant to the financial system, generating over $400 million in revenue annually. In the past decade, regulatory revisions to disclosure requirements and reformations to investment banking research practices have fueled the rise of expert networks. Despite recent notoriety in connection with Raj Rajaratnam’s insider trading case and various insider trading convictions of expert network consultants, use of expert networks is legally permissible, as specifically acknowledged by the SEC. Nevertheless, expert network firms, expert consultants, and clients must guard against insider trading by ensuring that no information transferred is material, nonpublic, or acquired through a breach of duty. This article argues that strong compliance programs and well-written contracts protect expert networks against insider trading and regulatory investigations.

Filed under Research

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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