Primary Global Research at the heart of tech insider-trading crackdown

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The little-known ‘expert-networking’ industry has come under intense scrutiny from federal authorities who want to stop what they believe is an insider-trading epidemic that has spread throughout the tech industry.

Among the firms at the center of the dragnet is Silicon Valley’s Primary Global Research.

Several employees from the boutique company, started in 2003, may be facing jail time for their alleged part in facilitating the sale of confidential business information to hedge fund investors looking to get a valuable edge.

The Los Angeles Times has just posted a story on Primary Global Research that details the growing number of arrests of employees as well as consultants that it hired and paid hundreds of thousands of dollars. Those consultants were generally employees of well-connected technology firms.

From the report by Stuart Pfeifer and Jessica Guynn:

Expert-networking firms have exploded in the last decade, the result of Securities and Exchange Commission regulations adopted in 2000 that required public companies to disclose material information to everyone at the same time. The new rules increased demand for firms that could connect analysts with experts who could provide an edge, said Michael Mayhew, chairman of Integrity Research Associates, a New York firm that analyzes the performance of investment analysts.

Primary Global was one of the largest beneficiaries, charging asset managers steep fees to pick the brains of its stable of outside consultants. The company’s revenue reached an estimated $20 million to $25 million a year, making it among the top five expert firms in the country, Mayhew said.Primary Global also employed a team of in-house research analysts who were frequently quoted in publications that included the Wall Street Journal, Investor’s Business Daily and Barron’s.

‘Users, not surprisingly, loved them for their expertise in the technology sector,’ Mayhew said. ‘They had built a pretty successful business.’

-- David Sarno