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By Beverly Chandler, Opalesque London:
Greg Worsfold, a consultant specialising in regulation emerging from the US’s SEC at compliance consultants, Kinetic Partners, is warning hedge funds, among others, that while expert networks can provide a competitive edge in making investment decisions, hedge funds must still implement strong internal controls to ensure they do not fall on the wrong side of the regulator.
So-called 'expert networks’ have only become more common over recent years and gained notoriety through the Galleon Group case. Consultants of Primary Global Research came into the spotlight following a government investigation linked with the Galleon case and found that a number of consultants had crossed the line by passing on inside information to hedge fund traders.
'Expert networks’ are middlemen providing access to industry consultants in an industry or new area where an investment manager may want to invest or gain more information. Worsfold says: "The big problem is that despite any controls you have linking them with someone who potentially may be in possession of inside information there is always that chance that they pass that on."
While the SEC has been more active on this matter, Worsfold cautions that firms need to be on top of this on both sides of the Atlantic, particularly with the news last week about the FSA fining hedge fund Greenlight for 'trading abuse’.
In a paper on the subject, ...................... To view our full article Click here
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