A consolidation among ‘expert-network’ companies probably will accelerate after the arrest of two Primary Global Research LLC employees and three of the firm’s outside consultants in the past three weeks.
The US insider-trading investigation that led to the arrests will prompt clients to withdraw and heighten pressure on companies to prevent their experts from leaking nonpublic information to clients, according to Michael Mayhew, founder of Integrity Research Associates LLC in New York, which tracks the industry. Those that can’t afford or don’t want to make costly technology and personnel investments to upgrade compliance will be winnowed out, he said in a telephone interview.
“This next few months could put some firms out of business,” said Mayhew, who has talked with clients in recent days who are concerned that the investigation will open them up to scrutiny. “Business will become more difficult, and there will be consolidation.”
Last year, Guidepoint Global LLC in New York acquired Vista Research from Standard & Poor’s. Fees were being squeezed even before the government probe, said Mayhew, whose firm is 20 per cent owned by Zurich-based UBS AG, the largest Swiss bank.
Crackdown expands
Three managers at technology companies who moonlighted as experts for Primary Global were arrested December 16 as the US Attorney in Manhattan expanded a probe that has led to charges against more than two dozen hedge-fund managers, traders and corporate executives and 15 guilty pleas. Also charged was an account manager of the Mountain View, California-based firm, while a manager at Dell Inc. pleaded guilty to wire fraud and conspiracy to commit wire fraud and securities fraud.
Expert networks have been under a cloud since the November 24 arrest of Don Ching Trang Chu, Primary Global’s Asia liaison.
Consultants recruited by Primary Global “speak one-on-one with PGR clients to provide up-to-the-minute intelligence on trends, issues, regulations and dynamics affecting a particular company, product or industry,” according to its website.
Growth slows
Expert networks, which connect hedge funds and other investors with current and former corporate managers, doctors and others, have multiplied from eight to 40 in the past decade.
