Last month, I did a blog entry looking at whether hedge funds create criminals. It's a question worth considering. Hedge fund traders are instructed to focus on one thing only, maximizing returns. And in any case, many of them would consider insider trading to be a victimless crime.
Now we have further evidence of that with The Wall Street Journal reporting how a former Citigroup hedge fund manager, Samir Barai, has been pinged as a co-conspirator in an insider trading case and that his company, Barai Capital Management, was raided by the FBI.
The interesting part about this case is how it identifies a network of corruption right through Wall Street where insiders at various companies were primed to give tips. "The investigation is examining whether hedge funds and other investors traded on inside information received from corporate employees freelancing as consultants for "expert-network" firms."
Basically, these expert-network firms link investors with industry experts, including employees of public companies. They do it for a fee of course. Investors, primarily hedge funds, tap these experts to try to get extra information. Now these firms claim to have strict rules regarding the disclosure of nonpublic information between consultants in their networks and clients.
But it's clear that federal prosecutors are now investigating whether that's right and whether confidential material is being passed along in meetings and calls between the network consultants and the hedge funds and other investors who are paying big money to speak with them.
It sheds some light on Wall Street's web of corruption engulfing hedge funds, expert-network firms that were only created to give inside information, Wall Street employees and their companies.
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