The U.S. Securities and Exchange Commission has brought charges against a New York-based hedge fund and four hedge fund portfolio managers and analysts, alleging that they illegally traded on confidential information obtained from technology company employees moonlighting as expert consultants.

The SEC’s charges are the first against traders as part of its ongoing investigation of insider trading involving so-called expert networks, which purportedly provide professional investment research.

Last week, it filed charges against technology company employees, claiming that they illegally tipped hedge funds and other investors with material nonpublic information about their companies in return for hundreds of thousands of dollars in sham consulting fees.

In its amended complaint filed Tuesday in federal court in Manhattan, the SEC alleges that four hedge fund portfolio managers and analysts received illegal tips from the expert network consultants and then caused their hedge funds to trade on the inside information. It says the scheme netted more than $30 million from trades based on that information. The allegations have not been proven.

The SEC says that while it is legal to obtain expert advice and analysis, it is illegal to trade on material nonpublic information obtained in violation of a duty to keep that information confidential.

“It is illegal for company insiders who moonlight as consultants to sell confidential information about their companies to traders, and it is equally illegal to buy that corruptly obtained information and trade on it,” said Robert Khuzami, director of the SEC’s division of enforcement. “Instead of competing on a level playing field with other investors, these hedge fund managers sought to illegally trade today on what others would not learn until tomorrow.”

The SEC’s amended complaint brings charges against Barai Capital Management and four individuals, seeking a final judgment permanently enjoining the defendants from future violations of the securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties.

IE