Expert Networks probed by New York Attorney General


New York – This morning’s Wall Street Journal reports that the New York Attorney General’s office is investigating whether expert network providers, Gerson Lehrman and Vista Research have overseen inappropriate relations between their clients and their experts. Given the broad nature of the subpoenas having been issued, it is clear that this is exploratory rather than a highly evidenced case.

The expert network model has been very hot in recent years. The service matches experts with clients of the research companies. The expert networks have, among other experts, middle management of companies on tap for clients to talk to. The question is whether the expert may have provided nonpublic information to clients – either knowingly or unknowingly.

In parallel, the SEC is investigating certain hedge funds that may have been at the receiving end of this information.

There is nothing wrong with having a network of experts in specific fields on tap to discuss investment ideas or gain on-the-ground industry experience. Indeed, Gerson and Vista have significant policies and procedures in place, including attestations by their experts as to their responsibilities under the consulting agreement. These attestations are re-executed on a regular basis. In this regard, the expert networks have done their best to keep the nature of the consulting agreement clear.

However, there have been cases where the experts have not informed their companies that they are providing consulting services, or where the interim results from a clinical trial have been leaked.

One of the issues that may result from this investigation will be a clearer definition of who is responsible for the conduct of the experts; the experts themselves, or the expert networks that employ them. Given the massive number of experts in the Gerson and Vista stables, any implication that they are liable for the conduct of their experts, outside of the existing safeguards would be a serious blow to the expert network model.

Here is a link to the WSJ article.

Comment by Will Greene:
Many companies have strict policies that prevent employees from doing any outside consulting work. These policies make sense, especially as a measure to keep high-level executives from revealing illegal nonpublic information to the investment community. Other companies don’t necessarily have stated policies to prevent employees from doing outside consulting work, but would probably discourage it if they knew about it.

Gerson Lehrman has its own policies in place to discourage experts within its network from doing consulting engagements without the consent/notification of their employers. The company requires written permission from their employers to participate in more than three consulting gigs a year.

From my standpoint, this policy seems like a good start towards discouraging executives from circumventing the policies and bylaws of their employers. Nonetheless, it is clearly not a perfect safeguard. Employees of companies with policies that prohibit/discourage outside consulting work can still get away with doing a few gigs for Gerson and fly under the radar of their employers.


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