When in doubt, consult an expert, goes the familiar refrain. But in the case of hedge fund SAC Capital Advisers, seeking the advice of experts is proving to complicate matters, particularly when it comes to allegations of insider trading. The infamous hedge fund run by the notorious Stevie Cohen is under the media and regulatory glare as prosecutors claim to be “closing in” on a multi-year investigation.
At the heart of the current case filed last week is the role of “expert network” firms, i.e. consultancies that match money managers like SAC with experts in particular industries for research and information gathering purposes. Two former SAC employees have already admitted to insider trading, citing information gleaned from expert network firms. In SAC’s most recent woes, a professor of neurology, overseeing clinical trials for a new Alzheimer’s drug, was also contracted by an expert network firm to give SAC his professional insights.
As the case goes to trial, the PR dilemma will be how to characterize what was being paid for. Given that the retained fees were high (in this case, over $100K), the understandable assumption will be that the information flow amounted to more than just general insights. Expert firms are going to have a tough time explaining to a skeptical public what sort of advice their fees provide.
The PR Verdict: “D” (PR Problematic) for the “expert network” industry. There’s trouble ahead.
The PR Takeaway: Money and freely-available public information don’t mix. The PR dilemma is how to explain why hedge funds are paying substantial fees for insights that the experts claims are non–privileged and already publicly available. When in-house experts are moonlighting from the public companies that they work for, then the suggestion of insider information inevitably raises its head. So far, the traditional PR answer has been to characterize the information flow as insights, not hard information. But as insider trading cases continue to mount, that distinction is going to seem less and less believable. In this case, clever wording won’t be enough to save the day.