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Galvin: State rules for ‘expert’ networks go into effect in Dec.

Secretary of State William Galvin said today that a new rule that will regulate how hedge funds can use so-called expert networks will go into effect Dec. 1.

Galvin proposed the rule earlier this year following a federal probe of expert networks that found they sometimes passed along information that enabled insider trading. For a fee, expert network firms arrange for executives from public companies to provide nonpublic information to investment firms. The probe into expert networks has resulted in charges against employees of hedge funds, high-tech companies, and pharmaceutical firms for engaging in or enabling insider trading in numerous stocks.

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The new state rule would require investment advisers that hire expert-network firms to obtain written certification that the experts are not subject to confidentiality restrictions – and will not pass along confidential information to the investors.

According to Galvin, the Securities Division of his office has as adopted a “first-in-the-nation’’ regulation to govern hedge fund advisers and other investment advisers that use matching or expert network services to engage the services of investment consultants.

“This regulation is designed to thwart the misuse of inside information improperly obtained by these expert network consultants and ensure that information they provide was properly obtained,’’ Galvin said in a statement.

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