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By: Joshua M Newville and Jeffrey Neuburger, Proskauer

The WSJ recently published an article detailing how companies are monetizing smartphone location data by selling it to hedge fund clients. The data vendor featured in the WSJ article obtains geolocation data from about 1,000 apps that fund managers use to predict trends involving public companies. However, as we've noted, the use of alternative data collection for investment research purposes may give rise to a host of potential issues under relevant laws.

Alternative data sets may conceivably contain material nonpublic information (MNPI), or information that, when aggregated, could be considered MNPI. Trading while in possession of such information might lead to liability under the securities laws if confidential information has been "misappropriated" in breach of a duty owed to the source of the information. If data has been collected in a manner considered "deceptive," then there is a risk that trading on that information may be considered part of a fraudulent scheme in violation of the anti-fraud provisions under the securities laws.

Fund managers who use such data need to be careful. One concern is whether vendors have obtaine......................

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