Kinnucan is the expert network operator who refused to wear a wire and was indicted for insider trading. He was just sentenced to four years in prison, and he did things that expert networks do:

He admitted to supplying customers with confidential data about companies including SanDisk and Flextronics. Prosecutors said Mr. Kinnucan had built a deep network of sources at public companies by paying them cash and providing them with illegal tips.

It does sound fishy, doesn't it?  But that's kind of what expert networks do, as the Wall Street Journal has been saying for a while:

Generally speaking, expert-network firms link industry experts with hedge-fund managers and other professional traders for a fee.

Expert-networking firms started springing up in the early part of the last decade, after the SEC attempted to crack down on the practice of companies selectively disclosing information to analysts and other. Writes the WSJ’s Greg Zuckerman and Susan Pulliam in this 2010 story:

In 2000, the Securities and Exchange Commission attempted to make markets fairer by introducing rules barring companies from selectively disclosing material information to favored investors and analysts, a common practice during the 1990s technology bubble.

The SEC rule, Regulation Fair Disclosure, barred investor-relations professionals and other senior executives at public companies from selectively disclosing market-moving information to analysts and investors. The SEC said Reg FD would “bring all investors, regardless of the size of their holdings, into the information loop.”

But a back-door method was discovered to help big investors find an edge: companies offering to match “experts,” such as midlevel executives at various companies, with investors.

Indeed, the network experts continue to crop up in this continuing wave of insider-trading cases.

I'm not sure if these outfits are now doomed, but it must take some strong nerves to operate one these days.  It's anecdotal, but my students at Wharton, fwiw, report turning to these networks quite a bit before coming for their MBAs.

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