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Blind resentment of things as they were was thereby given principle, reason, and eschatological force, and directed to definite political goals
–Daniel Bell, The End of Ideology (1962)
Imagine a time before writing, when you would learn things from your hands and your elders. Spoken words were helpful, but the root and branch of education was one’s experience with things, not abstractions. Timothy Ferris fashioned exactly this idyllic world in Wired Magazine this week and enlisted the vanguard of scientists and engineers to invoke the old path of learning and bring us back to interrogating nature directly.
What, then, drove society off course? Read the rest of this entry »
The Economist drafted a typically cheeky and wonderfully entertaining gloss on the current state of expert networks. For the most part, they get it right, but they also get it wrong in important ways.
No, Wini Jiau is not a player in the expert network industry. She was a consultant whose information was the envy and downfall of the investment community and is alleged to have persistently acquired and sold material non-public information to a loose band of investors. The Economist would have done better to mention Don Chu, who did work at Primary Global and did confess to trading in inside information. Wini was just a consultant.
Yes, because of what may eventually be described as a systematic conspiracy by Primary Global to trade in inside information through a vast network of corrupt insiders, both alleged and confessed, eyebrows have been raised. Regulators, investors, and limited partners have awakened to the risks inherent in any research activity.
No, these risks are not particular to expert networks. Indeed, an example elaborated by the Economist actually suggests the opposite – that expert networks might serve as a kind of prophylactic to the kinds of funny-business to and for which we have recently seen many confessed and convicted.
The Economist suggests that compliance protocols and procedures are no match for those determined to do wrong. The piece conjures a cautionary tale of an investor, having been introduced to an expert through a network, rerouting their activities through an independent consulting relationship, “which enables them to buy tips without GLG ever knowing.”
It’s certainly possible, but isn’t it also an argument for expert networks. If expert networks are so darn difficult about compliance that an adroit and corrupt investor would choose to circumvent them, then shouldn’t “compliance chiefs” relish the chilling effect expert networks have on their employees’ baser instincts?
I did enjoy, however, their clever turn of phrase to a conclusion. Indeed, Rajat could have used some expertise in discretion. Though perhaps he could have learned it through the policies, procedures and systems of an expert network.
As the Rajaratnam prosecution revealed, the “expert network” firms that produced high-level insights — allegedly by paying technology industry workers for inside information — hardly were engaging in legitimate research.
–Jim Pavia, Editor, Investment News.
It’s surprising and disappointing to see Jim Pavia commit a gross failure of analysis in his review of insider trading. The Raj case wasn’t about expert networks. It was about insider trading.
Jim boldly misstates the circumstances, figuring a relationship that he thought must exist, and failing to recognize the fact that Raj was accused of insider trading based on information obtained through personal relationships with insiders, not through expert networks.
The crimes Raj has been convicted of weren’t conducted in the open. They were committed in the shadows, outside of any formal process. His information came from personal relationships and personal sources. If anything the formal compliance systems, controls, and policies of an effectively managed expert network would have scared him off and made him think twice about pressing for inside information. Knowing that an auditable record of his interactions would be on file at the network would have reminded him of his obligations to the law and society.
Yes. Insider trading is a problem. It poisons the market in a way that suggests the “game is rigged.” But one must also learn to recognize it for what it is – bad people doing bad things. Raj was convicted for gathering inside information through personal relationships with insiders, not through expert networks.
Even inside information from an ‘expert network’ would not have helped.
–Yves Smith, Naked Capitalism
Not even an expert network would have helped, says Yves Smith of the earthquake in Japan, rather blithely suggesting that an expert network is nothing more than a vehicle with which to exchange material non-public information. Would it were the case. If only inside information equated to expert networks, imagine how easy enforcement of insider trading would be! Shut down the networks, Smith might say, and we will purge the rot of a rigged game from the system.
But inside information and expert networks are different things. To conflate them is a failure of analysis and a lazy view on the role of expert networks, the problem of inside information, and research in general. Read the rest of this entry »
Contrary to some reports that I have seen, I believe these cases do not represent some inherent hostility by the Commission toward expert networks, nor do they indicate that the Commission is seeking to undermine the mosaic theory, under which analysts and investors are free to develop market insights through assembly of information from different public and private sources, so long as that information is not material nonpublic information obtained in breach of or by virtue of a duty or relationship of trust and confidence.
–Carlo V. di Florio, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission, remarking on the misplaced focus on expert networks during the unfolding of the various insider trading scandals that “seem to have spawned some urban legends and misunderstandings”: via speech at the Omni Shoreham Hotel, Washington, D.C., March 21, 2011