Broader access last step needed in expert network industry clean up
I recently had the privilege of being a guest on the Estimize podcast hosted by company founder and CEO Leigh Drogen. You can listen to the podcast here: http://bit.ly/Wg0rIj
I wanted to follow-up regarding a point that I touched on during the podcast in longer form. Leigh asked me about the state of the expert network industry and the degree to which people who utilize them in their expert research do so in order to gain an unfair edge. His question was essentially “What % of people are using expert calls to fundamentally learn about stocks and educate themselves vs. looking for an unfair advantage or insider edge.”
I understand his concern, and his question. My background is at CR Intrinsic, a division of SAC capital, and that firm was no stranger to insider trading controversy and litigation due to abuse of expert networks. However, I do feel strongly that the role of expert calls is absolutely essential to informed investment analysis, as well as doable in a completely legal and ethical manner. The violations and abuses were carried out by a small % of institutional investors in general, and a very small % of them at even SAC. The value of expert calls is the speed in which they enable an investor to become well versed in any topic.
Here’s the quote from Robert Khuzami, Chief of the SEC’s enforcement unit between 2009 and 2012, I referenced on the podcast about the transformation of the industry.
“I think this is an example where the spotlight of law enforcement helped to clean up an industry. As a result of these prosecutions, those expert networks that crossed the line and used their companies to engage in insider trading are no longer in business. And also, hedge funds have imposed controls that make sure that their research analysts and traders do not, willingly or unwillingly, obtain inside information through these networks. These funds are conducting due diligence on the expert networks before they use them, making sure that the source of the information, and the information itself, is legitimate. They are asking for certifications to ensure that the expert network employee will not provide them with material nonpublic information. They are chaperoning the calls with expert networks, and taking other steps to make sure these networks are not being abused. So, it is a good example where law enforcement focuses on certain activity and it triggers steps by the industry to make sure abuses do not occur.”
~ Robert Khuzami, Former Chief of the SEC’s enforcement unit between 2009 and 2012
The cleaning up of an industry is excellent and encouraging to market participants that engage in that industry, but it doesn’t do enough if the benefits are restricted to a small number of players. The point that I touch on with Leigh that I think is key, and fundamental to why Slingshot Insights was created, is one about access.
The analogy that I mention in the podcast, steroids in sports vs. healthy training, is a bit of a stretch, due to the fact that we all take access to some form of working out as universal. By league officials, law enforcement, and player’s unions seeking to ensure that athletes do not take illegal performance enhancements, we begin to feel again that any talented child or athlete has the potentially to ethically compete if they have the talent and work ethic.
The sad reality of investing and investment research is that merely removing the use of “steroids” institutionalized insider trading, does not result in an equal playing field. It would be like a world where only professional athletes and select minor league programs had access to strength and conditioning.
As I’ve stated in previous posts and comments about the company, Slingshot Insights is about providing broad access to this useful, and now “cleaned up” industry. Now that rules and focus have fixed the expert network industry, the last remaining hurdle is allowing broad access to its value. By leveraging technology, collaboration, and crowdfunding Slingshot Insights will bring this valuable resource into the hands of all those who want to compete in single name stocks like a professional.
