Point, Counterpoint, FrontPoint, Guidepoint

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New York – Last week we wrote that the SEC had begun litigation against a Dr. Yves Benhamou. Dr. Benhamou is charged with releasing material nonpublic information relating to drug trials conducted by Human Genome Sciences.  This week we find that the introduction between FrontPoint and Dr. Benhamou may have been made by Guidepoint Global, an expert network. Guidepoint Global has not been named in the case.

From Integrity’s perspective, the interesting piece of this probe is the impact it may, or may not have on the research industry, particularly the expert networks. There is always a risk that the expert network industry as a whole gets painted with the same brush as the specific malfeasance. However, this was the operating logic that pervaded the Galleon case several years ago. At the time, it was thought that the expert networks would be subject to greater oversight and would lose business as a result of the incident. This was not the case. If anything, the Galleon case gave the expert networks a boost, because they have a compliance framework that protects investors.

In the current case, it can be demonstrated by Guidepoint’s compliance structure that the Dr. was in breach of agreements he had attested to while consulting for Guidepoint Global.  From a regulatory standpoint it seems far preferable to have information flowing through an expert network, where compliance is an important part of the consultation and an audit trail is easy to follow in the consultations that take place.

So far we are clear that Guidepoint Global followed protocol and all compliance in their dealings with Dr. Benhamou and that he apparently breached the contract and released material nonpublic information to an individual at FrontPoint Partners. As is apparent from other stories on the topic, an individual at FrontPoint and Dr. Benhamou became friends over a period of several years, even having dinner together on at least one occasion. If the information was released in a social setting and not within an expert network consultation, it would be even less relevant for Guidepoint and the expert network as a whole. 

As a result, we feel that the event will again support the use of expert networks because they are much more acceptible information conduits to both the asset managers and the regulators.

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