Will the SEC Deem Expert Networks like Gerson Lehrman Per Se Illegal?
With all the negative press these days surrounding expert networks and insider trading, I wanted to learn a little more about what exactly goes on before commenting. I have known for quite some time that my father is a consultant for the Gerson Lehrman Group, probably the most infamous of all the expert networks. Considering that my dad is your average neighborhood dentist and a small business owner (he owns his practice), with absolutely no access to any inside information at all, I found it a bit shocking as to how broadly negative the rhetoric around these firms has been.
The media would have you believe that the very existence of these “expert networks” in and of itself lends to a presumption of wrongdoing and that has really bothered me. I know my father is an upstanding citizen and beyond that, I know that he isn’t even in a position where he could have access to inside information. So knowing that, how could it be possible that the existence of an expert network is per se illegal?
My father has done several consultations on behalf of Gerson Lehrman Group (GLG) for investors seeking access to information about dental practices. One of our family friends worked for the company several years ago asked my father to join their network, as they were looking for dentists. He was intrigued by the idea. He was told that some sophisticated investors wanted more information as to what new equipment and trends were taking place in the dental practice and to that end, GLG simply served as the intermediary through which these investors spoke to actual practitioners in the field to learn completely benign, but valuable information.
What would investors possibly want to know from a dentist? Well there are many businesses related to all levels of the dental practice supply chain. These investors wanted to learn the opinion from a medical professional about some of the various products. My dad would be asked his thoughts about something, whether he uses it or not, how well it works. Investors wanted to know about some capital intensive equipment, so learning whether a dentist actually makes use of the product or not is very valuable to a potential investor. Additionally they asked my father about trends in his practice: whether it’s growing or contracting and if he felt more or less comfortable than in years past about making major equipment purchases.
There are several points that must be made here. The subjects of the discussion all were clearly about information that is in no way covered by insider trading, either implicitly or expressly so. Moreover, my father simply isn’t privy to any insider information whatsoever. He doesn’t work or consult for any company and has no relationship at all other than being a customer to some of the companies covered. In essence, he is merely a professional practitioner who owns a small business and can gleam light on what is of medical utility to his practice.
Personally I think this is a pretty important service to both investors and dentists alike. It helps ensure that investors are looking to allocate their capital towards the most efficient medical uses as opposed to the ones that merely appear the best based on company filings. The benefits of such an arrangement are twofold: they make for more profitable investing and most importantly, they ensure that investments go to products that are of most utility to the doctor and their patients. There’s just no way for an investor to truly know what may or may not be a good dental product without talking to an actual dentist.
It goes without saying that just because my father’s interactions as an “expert consultant” were pure and clean does not preclude the fact that others may have acted improperly. But even if that is the case, that should not lead to the conclusion that “expert networks” are in and of themselves evil. There clearly is a legitimate value addition that they can offer to society at large, so long as it is done so in accordance with our laws.