New York partner John J. Carney was recently quoted by Bloomberg Businessweek (December 17, 2010) and The New York Times DealBook (December 16, 2010) in stories profiling the government’s probe of insider trading by hedge funds.
According to the Bloomberg article, the Justice Department charged three former consultants and a sales manager for Primary Global Research LLC, an “expert networking” firm for hedge funds, with fraud and conspiracy. Prosecutors say the consultants, who are also employees of technology companies, provided market-moving information—including sales figures, forecasts and production data—to investors. The sales manager, considered to be a kind of “matchmaker” in the equation, allegedly fielded client requests for the information.
Why the focus on these organizations? “Expert networks have come under increased scrutiny amid fears by regulators that they are unregulated conduits of insider information,” the Times article explained.
Carney discussed the complexity of the government’s probe into Primary Global, calling it “one of the most exhaustive insider-trading investigations ever conducted,” according to the Bloomberg article. “The SEC and Justice Department normally look for a trail between the trader and the inside information,” Carney added. “In this case, the expert network provided anonymity to both the trader and the source. Without the cooperators and the wiretaps, it could have gone undiscovered.”
Now that arrests have been made, “One important standard that prosecutors must establish in such a criminal case is ‘scienter,’ or intent to commit fraud,” the Times article noted.
But that may not be such a tough task, considering that “No one would be willing to pay large sums of money and go to the lengths alleged in the complaint to buy confidential information that wasn’t important,” Carney said in the Times article.
Carney, a former Securities Fraud Chief, Assistant United States Attorney, U.S. Securities and Exchange Commission (SEC) Senior Counsel and practicing CPA, serves as co-leader of Baker Hostetler’s national White Collar Defense and Corporate Investigations team. He focuses his practice on white collar corporate investigations, monitorships and government enforcement defense and securities regulatory enforcement and litigation defense.