Insider Trading And 'Expert Networks' : Planet Money Investors pay middle men to talk to employees of publicly traded companies. Federal prosecutors say the practice has led to insider trading.
NPR logo Insider Trading And 'Expert Networks'

Insider Trading And 'Expert Networks'

Four more people have been arrested as part of a federal investigation into insider trading. Here's more on today's arrests from the AP and the WSJ.

The investigation centers on "expert networks," companies in the business of linking big investors with current and former employees of public companies.

The idea is that the investors — pension funds, mutual funds, hedge funds — can gain insight into companies and industries where they're looking to invest.

So the investors pay the expert networks a fee, and the expert networks pay the experts a fee for talking to the investors.

This is not illegal on its face — as long as the experts don't disclose secrets about their companies that could affect the stock price. If they do that, it's insider trading. The U.S. attorney leading the investigation says some experts crossed this line:

Today’s charges allege that a corrupt network of insiders at some of the world’s leading technology companies served as so-called 'consultants' who sold out their employers by stealing and then peddling their valuable inside information.

Of the four people arrested today, one was an exec at an expert network company, and three worked for high tech companies and consulted for the expert network company on the side. (The AP and WSJ stories have more on the particulars.)

The expert network industry has grown a lot in the past decade — there are now more than three dozen firms in the business, up from fewer than 10 in 2000, according to the WSJ, which broke the story of the investigation last month.

As of last year, more than a third of institutional investors were using expert networks, according to the research firm Integrity Research.

For more: "Illegal trading is rampant and may even be on the rise." Read excerpts from a recent speech by the U.S. attorney behind today's arrests.