Free White Paper: The Definitive Guide to Primary Research Compliance

ronit — Tue, 04 Dec 2012 19:23:31 +0000

Download This White Paper

The Definitive Guide to Primary Research Compliance is a step-by-step tutorial on quickly instituting a primary research compliance program that is in-line with current industry best practices.

Armed with this guide, hedge funds and investment advisors can compare their existing compliance regime to that of their competition, to identify and fix gaps in their programs, before those gaps become the focus of regulators and investors.

The Guide’s topics include:

Vendor due diligence
Expert/consultant due diligence
Analyst training
Pre-project and pre-call reviews
Interview compliance
Post-call compliance and analyst feedback
Ongoing reporting and audit

How to Legally Interview Customers and Suppliers, Part 1

mosaicrm_admin — Wed, 17 Oct 2012 14:25:05 +0000

While the benefits of using primary research vendors are clear, the legality can seem a bit murky.

One gray area is how analysts can safely conduct interviews with customers or suppliers of target companies. The information garnered from these subjects can be problematic in two ways:

1) If the information could be considered material non-public
2) If providing the information causes an employee to break a contractual or fiduciary duty of confidence

Recent insider trading cases such as those brought against Alnoor Ebrahim and Walter Shimoon exemplify how conversations with customers and suppliers can lead to the disclosure of material non-public information. Since Ebrahim worked for AT&T and AT&T is a material customer of Apple, it was a breach of his fiduciary duty for him to reveal sales figures. In Shimoon’s case, his company was a material supplier of Apple, and thus disclosing secrets about the iPad also happened to be illegal.

In addition to avoiding material customers and suppliers, funds should not conduct research calls with contacts who are not permitted to consult by their employer or who would be breaching contractual obligations. While soliciting information from these subjects may not fall under insider trading, it is still illegal. For example, the retailer Big Lots sued a research firm for digging up information from store managers, which Big Lots alleged was a violation of the employees’ fiduciary duties.

Minimum Best Practices

To ensure compliance when conducting supplier and customer interviews, when using expert network vendors funds should have a copy of the vendor’s contract with its experts. The contract needs to include language indicating that the expert is allowed by his or her employer to consult.

The researcher should also have a list of each expert’s “conflict companies” (companies on which the expert can not legally provide information), and these conflict companies should not match any of the fund’s current or pending investments.

Finally, funds should have a policy to decide what should be considered “material.” Since materiality is subjective, even to regulators, it’s not always clear who is a material supplier or customer. But if a fund establishes a threshold and does not consult with anyone clearly above this limit, they will avoid potentially troublesome situations.

Checklist for Implementation

1. Procure standard consulting contracts signed by experts from each vendor, affirming that expert is allowed by employer to consult.

2. Check that companies on which an individual expert cannot consult due to conflicts of interest do not include any current or pending investments. Maintain a centralized list of these “watch list” companies.

3. Have a standardized policy for materiality and a procedure for handling calls with potentially material customers and suppliers. Suggested policies include having scripts prepared by analysts prior to the call or having a compliance representative ‘chaperone’ the call. Train analysts to recognize what constitutes materiality and to avoid seeking material info.

In Part 2, we will discuss advanced best practices being implemented by the world’s largest research organizations.

About Mosaic…

Mosaic Research Management, LLC is the provider of MosaicRM, the first technology platform to bring fund compliance teams, investment teams, and research vendors onto a single dashboard, to help hedge funds and private equity firms improve their research and compliance workflows. To request a MosaicRM demo, please click here.

Webinar: 4 Research Compliance Tools to Protect Your Firm

mosaicrm_admin — Sun, 08 Jul 2012 20:36:31 +0000

If your competitors have better systems for primary research compliance, your investors could be lured elsewhere and the SEC could be concerned; costing your firm millions of dollars in redemptions and audit expenses.

What you and your legal team probably don’t know – primary research compliance can be easy if you have the right framework and tools

To request a replay of this webinar, please contact us at info@mosaicrm.com.

About Mosaic…

Mosaic Research Management, LLC is the provider of MosaicRM, the first technology platform for managing primary research vendors and contacts. To request a demo of the MosaicRM app, please Click Here, or call us at 212-203-1130.