Spotlight on hedge funds in SEC probe

At least 15 hedge funds improperly received corporate secrets from company officials, according to securities regulators investigating alleged insider trading on Wall Street, expanding the number of money managers under government scrutiny.

The Securities and Exchange Commission filed civil securities fraud charges on Thursday accusing two consultants with expert network firm Primary Global Research and four company employees with providing non-public information about earnings and technology products to hedge funds and others.

The allegations are similar to criminal charges filed in the past several weeks, but the SEC filing reveals the breadth of the investigation and its reach across Wall Street.

“This expert network engaged in a widespread insider trading scheme that served the hedge fund community,” said David Rosenfeld, one of the SEC attorneys investigating the matter.

Lawyers for most of the individuals named in the complaint have either pleaded not guilty or denied wrongdoing. Daniel Devore, a former global supply chain manager at Dell, pleaded guilty to passing material non-public information to clients of expert network firms Primary Global, Guidepoint and Vista, which Guidepoint acquired.

Expert network firms match company insiders or industry experts with money managers. The business can be a legitimate research tool, but federal prosecutors have alleged that insiders at many major companies crossed the line.

The SEC’s filing reveals how many hedge funds used the expert network firm and spoke to some of the company insiders now accused of wrongdoing. Hedge funds have been rattled by the probe, which is expanding, and some have stopped using research firms altogether.

Mr Devore of Dell spoke with 15 Primary Global clients a month, according to the SEC, while Walter Shimoon, a former employee of Flextronics International, participated in four to six calls a month with at least 11 hedge fund managers.

No hedge fund managers have been charged in connection with the expert network investigation to date, although the offices of several firms have been raided and subpoenas have been issued to others.

The SEC alleges that four hedge funds made or avoided losses of $5.9m over the course of the alleged scheme.

The court filing also shed light on how Primary Global operated. Primary Global officials would act as handlers between the public company insiders and hedge funds. Some of the company executives were known only by their first name or nicknames to protect their anonymity, which the SEC said was meant to avoid detection from the companies where the individuals were employed. The expert network employees assured potential clients that no calls would be monitored or recorded.