Business Insider: Coatue Management Being Investigated For Possible Insider Trading

According to an

at businessinsider.com, $3.5 billion hedge fund Coatue Management is being investigated for possible insider trading violations as part of a sprawling inquiry that has been sweeping across Wall Street. According to a Business Insider source, the technology focused fund has disclosed to an expert network that they are a client of, that they are being investigated, although it is unclear if Coatue has shared that information with its investors. Thus far, it does not appear that anyone at the hedge fund has been charged with wrongdoing. Coatue was founded by Philippe Laffront, who previously worked for Julian Robertson's Tiger Management before opening his own shop in 1999. According to sources, the hedge fund is, or has been, a client of Primary Global, the expert network that is at the center of the investigation. The BI source said that most of the Tiger Cubs (hedge funds whose founders got their start under Julian Robertson's Tiger Management) use Primary Global and that more of them will be investigated. Expert networks provide clients with information which often times comes from employees of public companies who moonlight as consultants. As a result, it is sometimes possible for hedge funds and other investors to gain access to material nonpublic information as a result of their relationships with expert networks, and by extension, industry insiders. Business Insider provided an example of how this would work. Let's say an expert network is in contact with an Apple

warehouse inventory manager. The expert network then puts the Apple employee in contact with a hedge fund analyst. The purpose of the discussions would not necessarily be to glean inside information (which would be blatantly illegal), but important information could be acquired anyway, which could be perceived as material and nonpublic in nature. For example, the warehouse manager could disclose that he received a memo to clear out the warehouse for a new product, and the new product turned out to be the iPhone 4. The hedge fund analyst could then conceivably figure out which company is helping to design and provide parts for the new camera on the iPhone 4 and subsequently invest in that company prior to that information becoming publicly available. One problem is that frequently the employees who are in contact with expert networks, and by extension, hedge funds, are unaware of what constitutes illegal information. Therefore, they could reveal something which is material and nonpublic, and an unscrupulous hedge fund manager may subsequently trade on that information, gaining an illegal edge. This is the type of opaque conduct that the Feds are currently examining on Wall Street and could lead to sweeping changes with regard to how investment research is done in the future. According to Business Insider's source, the current insider trading investigation is "far from over and Coatue is next." Stay tuned.