Expert networks return to the spotlight
The long, dense shadow of the on-going insider trading investigations has reached an unlikely firm: Private equity powerhouse Silver Lake Partners, which focuses mainly on technology companies.
The company also invested in the controversial expert network group called Gerson Lehrman Group, which Silver Lake continues to list as one of its investments. The firm, the epitome of a new-age research firm, exists to pair hedge funds with industry experts and has long generated controversy. The issue has come alive again in the wake of the charges against former SAC Capital analyst Mathew Martoma, who was able to cultivate at least one high value drug industry source through Gerson Lehrman.
DealBook notes that, "In fairness to Gerson Lehrman, the various complaints against Mr. Martoma make clear that the firm put Mr. Martoma and Dr. Gilman through a number of compliance programs and repeatedly provided them with notices — boilerplate e-mails — that Mr. Martoma was not to seek inside information and Dr. Gilman was not to provide it."
One e-mail explicitly instructed that the expert "will not reveal any information that the [expert] has a duty to keep confidential, including material nonpublic information." The e-mail also said experts "participating in clinical trials may not discuss the patient experience or trial results not yet in the public domain. Based upon the complaints against him, Mr. Martoma appears to have tried to dupe Gerson Lehrman about the true intent of his requests to talk to (the industry expert) by mischaracterizing the subjects he hoped to discuss."
In some quarters, Gerson Lerhman is known as the crème de la crème of the expert network industry, and thus far it has avoided direct involvement in the scandals. Others expert network firms have been implicated of course, including Primary Global. The most notorious arrest was that of John Kinnucan, who founded Broadband Research. The FBI tried to flip him, which prompted him to launch a series of increasingly bizarre public attacks. Kinnucan pled guilty to insider trading charges in July.
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