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The insider trading scandal began with shock and awe. Each week brought a raft of indictments. Well-stationed members of society were exposed as frauds and criminals. With insider trading its most visible focus, the legal violence against the finance industry continues. And like so many TV-addled teenagers, the public may now have lost the ability to respond.

An apathetic public, however, is no a reason to stop. Just because insider trading is no longer shocking doesn’t mean we shouldn’t prosecute it to the full extent of the law. But the failure to shock is also not a reason to search for a response by expanding the definition of insider trading. Read the rest of this entry »

The SEC doesn’t give formal guidance as to what is insider trading and what isn’t, but the fact is they said expert networks are not inherently improper and OCIE director Carlo di Florio and others have given guidance on policies and procedure to use them properly. There’s no specific insider trading statute and there’s not likely to be any time soon, because they’re trying to get at a wide range of conduct.

Marc Elovitz, partner at Schulte Roth & Zabel: via Reuters

You’re a JD candidate. You expect it will provide for a predictable and lucrative career despite the massive price tag. However, law school hardly looks like the ticket it once was. With law firms shrinking around the country, clients insisting on flat rates, and a new wave of highly sophisticated outsourcers, both domestic and international, not only are there fewer jobs, those that do emerge are less stable and less remunerative. Whoops!

Then the news cycle begins. Expert networks, once an obscure service to a niche industry, find themselves in the middle of a string of insider trading investigations. Read the rest of this entry »

Expert networks are everywhere. The “idea” site, PSFK, appears to have launched its very own, which they named purple list. The name appears to derive from the color-scheme on PSFK while providing a new spin on expert networks – a go-to source for new
ideas and inspiration.

Purple List has a similar look and feel to Quora, G+, or Focus, and it’s organized along the lines of Intota’s directory model. The about section suggests that they will charge the respective expert for listings, and those needing new ideas and inspiration can peruse profiles for free.

Sadly, a paid listings model will probably limit the opportunity of this marketplace. It’s just hard to say what an expert would get for their $20 profile.

We, as investors, do not feel we are at the point yet where it is necessary to ban managers from using experts. Furthermore, we will still invest in managers that do utilise the services of experts. However, it is essential for us to hold managers to a higher standard and demand that they implement specific practices.

Joshua Barlow, associate director at PAAMCO, underscoring the importance of sharing and enacting robust firm-level compliance policies in the absence of regulator-derived policies: via COO Connect

Why did Gerson Lehrman Group outsource payment and contract management to metratech?

Strip away all the fancy experts, managers, and front-line service-professionals from an expert network, and you see, at the bedrock of the business, payment and contract management.

Why would you outsource that? Why would you give up square one of the organization?

True. Payment platforms are commodities. Click-through contracts are procedural, annoying, and available. It’s tempting to let someone else take care of it. After all, a good cook doesn’t necessarily have a farm. In fact, they rely on others to produce the highest-quality ingredients for their recipes.

But it’s a bad idea.

Gerson Lehrman Group isn’t outsourcing individual ingredients. They’re outsourcing the recipe.

[NB: I’m surprised Integrity Research didn’t cover this.]

The reality is that LinkedIn has been used as a proxy expert network by many for some time now

Ross Dawson, a self-described globally recognized leading futurist, entrepreneur, keynote speaker, strategy advisor, and bestselling author, opining on the state of expert networks.

Not really. It turns out that LinkedIn went down the expert network road some time back, but to no avail. It hired management consultants. It built out a research-staff. It held preliminary discussions with hedge-funds, investment banks, and others, but in the end, it shut it down. So no, it’s not an expert network, and it hasn’t been one for some time now.

Ross is a smart guy. Why the mistake?

The mistake lies in a simple confusion of concepts. LinkedIn is a professional network. It’s organized like a directory. It has experts. You can use it to find experts, but calling LinkedIn an expert network is a lot like calling the membership-directory of the IEEE an expert network. Sure, there are a lot of talented engineers in there. You can even sort them by employer, location, and with the IEEE profile-data, very specific expertise, but at the end of the day, it’s just a more detailed phone-book. It’s a directory, and a directory does not an expert network make.

Expert networks not only allow you to find an expert. That’s the easy part — the part you can do with a directory like LinkedIn, an IEEE directory or the phone book. Expert networks provide tools to facilitate the full life-cycle of an interaction between an expert and a client. These entail the stages over which Ross glosses when he says, “It is a little more effort to negotiate terms and make payments than it is on an existing platform, but it isn’t hard to do.” That’s a lot like saying, “all you really need for a restaurant is some food and a kitchen, right?” Neither statement is all you have to worry about to get started, and neither venture is that easy.

An expert network solves three problems. First, discovery. It surfaces those experts, niche or otherwise, whom you need to know. Second, it manages the engagement from qualification to contracts and compliance to connections to compensation. Third, it builds a repository of all past connections for both experts and clients. It’s the combination of everything – the systems, policies, compliance – that makes it work. Otherwise, it’s just a directory.

LinkedIn has provided a boon to expert networks. They’ve made it immeasurably easier to discover experts and arrange to reach them. Firms like Gerson Lehrman Group, Guidepoint, Coleman Research, Cognolink and others are probably very large clients of LinkedIn’s premium features. LinkedIn has even signed a little discussed, though exclusive and expensive, marketing partnership with DeMatteo Moness, a minor expert network. Notwithstanding the exclusivity of the arrangement, DeMatteo remains a marginal player.

The evolution of expert networks is just beginning. Ross is right to expect changes, but he’s missing some of the detail that will illuminate where the model is actually headed.

He’s not alone, though. The many smokescreens, from the insider trading scandal emanating from so many connections fostered through Primary Global, to the fabulously successful IPO of LinkedIn, have either written expert networks off or suggested that they’re nothing more than a directory with a little more effort. From a competitive standpoint, it’s taken everyone’s eye off the inner-workings of what really makes them tick and scared them from even experimenting with the model. It couldn’t be a better opportunity for companies like Gerson Lehrman Group to consolidate their position in an industry defined by unrelenting growth.

there are probably a couple of bad apples…But how many people have gotten raped and killed after using Craigslist? You can’t go blaming Craigslist for that.

“Former GLG Exec,” quoted as fuming by the Economist.

OK – it’s alternately hilarious and disgusting to think that someone would actually say something like this.

First, sorry Gerson Lehrman Group, you’re disruptive, but you’re not Craigslist-disruptive. They undermined the entire newspaper industry.

Second, the stories of murder and abuse that have imprinted themselves into the lore of Craigslist personals are deeply saddening. It is inappropriate to make light of them through such an irresponsible and deluded comparison. That the comparison was made while fuming, as the Economist reports, is even more distressing, for it suggests a measure of petulance, delusion and utter lack of sensitivity on the part of this unnamed individual that ignores the very real suffering realized by those who have been raped and killed.

Third, and the Economist alludes to this, as well, Craigslist has come under fire for having appeared to enabled those tragic circumstances. Those who believe it to be only a platform, beware. Many have called for safeguards and procedures that might protect users and prevent just such outcomes. But both the Economist and this nameless “former executive” ignore some basic facts that would belie the parallel, benefit Craigslist and illuminate some underlying strengths and lessons that expert networks could provide.

Unlike Craigslist, where participation is largely anonymous and without controls or records, participation in an expert network is diligently recorded and carefully organized according to a series of procedures, policies and systems that are designed to protect everyone involved. Quoting Alexander Saint Amand, the Economist writes, “If you want to sell inside information, this is a terrible place to do it.” If that’s the case, perhaps Craigslist would benefit from making similar investments in an effort to protect their users and prevent those horrible outcomes described.

Yes, there are lessons to be learned, and the parallel can yield benefits, but what delivers immediate comfort to me is that the individual is not a current but a former GLG exec. Such craven and mercenary comparisons with so little insight into the basic workings of either Craigslist or expert networks have no place at Gerson Lehrman Group, Craigslist or any other enterprise.

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.

DealBook’s discussion of the upcoming Wini Jiau case left off with the ratio of pending cases to convictions and guilty-pleas in their on-going insider-trading investigation. It’s 80%.

Some 80% of those ensnared in the insider-trading investigation that shook up the street in the fall of 2010 have either plead guilty or been convicted of crimes related to insider trading. Among those pending, Wini Jiau. According to her court-designated lawyer, former federal prosecutor Joanna Hendon, Wini can’t wait to go “home to California and her beloved dog, Hunter.”

For Judge Jed Rakoff, who will preside over the case, however, the process is just getting started: “I am so impressed with the level of lawyering in this case on both sides. “I saw somewhere in press reports that the parties were talking settlement, and I personally hope that is not true because I am really looking forward to this trial.”

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