With the insider trading conviction of Galleon hedge fund founder Raj Rajaratnam behind us and the new insider trading trial of former Rajaratnam employee Zvi Goffer just getting underway this week, what does this all mean for those working in this space? Certainly, the industry's never happy with stepped up enforcement, and it's spooked the industry good. Even biggie Goldman Sachs hasn't been immune, with its former director also under investigation in the Galleon probe.
Meanwhile, the judge in the trial of Goffer, a Galleon trader charged along with two others in a separate insider-trading scheme, has told prospective jurors that they could hear secretly recorded telephone calls between Goffer and Rajaratnam. This was all part of questioning to weed out those jurors who may be biased because of Rajaratnam's recent conviction.
Federal investigators have made strong moves against insider trading by other hedge fund execs, as well as financial advisers and mutual fund staff in the past few months. Next up-U.S. prosecutors are furthering their investigations into insider trading at Steven Cohen's hedge fund account at SAC Capital Advisors.
But who else should worry? Internal research and expert networks need to be concerned. For those inside internal research departments, the future's surely going to be interesting. In order to prevent exposure or even a hint of problems, look for firms to shore up internal research departments. In-house compliance is already benefiting from the stepped up enforcement efforts, so look for additional jobs across Wall Street and beyond.
Research has changed dramatically since 2005 SEC enforcement actions against research analysts. Some research department staff is sure to jump ship again, especially given the additional unwanted attention, extra work, and possible efforts to pass the buck onto internal research staff.
Expert networks are already feeling the pinch from additional enforcement and legal action. The Galleon hoopla buried reports of investigations into a Primary Global Research former employee, as well as two of their consultants.
Massachusetts may be the first state to take proactive action against expert networks, with proposals underway to monitor the state's registered investment advisers who use expert network firms.