Charging Expert Network Participants With Wire Fraud


The U.S. Attorney for the Southern District of New York last fall described insider trading on Wall Street as "rampant and [perhaps] on the rise," and more recently, announced that his office is "far from finished" with its ongoing investigation into alleged illicit interrelationships between so-called "expert network" referral companies and hedge funds. Quietly, however, at least one of the government's charging decisions—to charge three company insider "experts" in United States v. Walter Shimoon, et al. with wire fraud, but not securities fraud—may signal that the government believes it faces a more complex legal landscape than first meets the eye. Specifically, by charging experts this way in Shimoon, the government apparently plans to avoid having to prove the "materiality" of the shared inside information under the securities laws.

The government's decision to bring criminal charges based on investment research techniques that may actually be permissible under the civil securities laws has shaken the confidence of fund employees and company insiders about where the line between acceptable behavior and criminal activity lies. In light of the wire fraud charges against expert network participants in Shimoon, hedge funds and their advisers must reexamine some of their standard practices, and consider the potential ramifications of the government's further pursuit of such a theory.

Excerpted from the New York Law Journal, April 29, 2011. To read the full article, click on the PDF linked below.

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