Mass. Issues Expert-Network Rule

Aug 10 2011 | 10:52am ET

Massachusetts has become the first state to impose new regulations on the use of expert-networks in the wake of the Justice Department's crackdown on insider-trading.

Beginning Dec. 1, Massachusetts investment advisers, including hedge funds, will have to certify that the expert-network consultants they speak to won't provide any confidential information and lay out all "relevant confidentiality restrictions" they must adhere to.

According to Massachusetts Secretary of the Commonwealth William Galvin, whose office imposed the new regulation, it is "designed to thwart the misuse of inside information improperly obtained by these expert network consultants and ensure that information they provide was properly obtained."

Massachusetts' action follows a Justice Dept. investigation that has ensnared 14 people, including hedge fund managers. All 14 were clients of expert-network Primary Global Research, beneficiaries of information those clients received, or employees or consultants of the company. Thirteen have either pleaded guilty or been convicted.

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