Hedge fund managers are bracing for a new era of intensified scrutiny of their research activities in the wake of the U.S. government's successful conviction of Raj Rajaratnam, the Galleon Group founder.
The mood at the Skybridge Alternatives conference in Las Vegas, where 1,700 people had gathered to discuss the state of the hedge fund industry in a Bellagio ballroom, was still bullish, at least by outward appearances.
However, in private many were unhappy with the government's tactics, with many managers expressing a fear that the boundary of what constitutes insider information is being pushed ever closer toward normal research activities – and that the tactic of using wiretaps will make analysts and traders far more circumspect on the phone.
"You should be allowed to gossip, so where is the line?" asked a Californian fund of fund manager. "There is a game played on Wall St called information arbitrage, everybody wants the edge. But if you do the deep research, and then meet a vice-president from Intel at a conference who tells you sales are great in his region, that line might be crossed."
With US prosecutors feeling emboldened by their victory in the Rajaratnam case, there is a feeling in the industry that the government's wide-ranging insider trading inquiry will accelerate. "I don't think it is going to go away," said Israel Englander, head of hedge fund Millennium Management.
And, in an industry that typically enjoys its ability to work well out of the limelight, the Galleon case has brought unwelcome attention. "Nobody likes that type of media scrutiny," said Steve Cohen, head of SAC Capital, as part of an onstage interview. "We take compliance very seriously and the reality is we are going to co-operate with any and all investigations," he added.
The worry also now goes beyond that of a fund manager's own activity to caution about who they might speak to on the phone, as any tangential involvement in an investigation can be painful.
"People have started to moderate their behaviour because the cost of litigating against the [Securities and Exchange Commission]is so great, both from an economic standpoint and a reputation standpoint," said Ron Geffner of Sadis Goldberg, a law firm.
"I've been a lot more careful," said one manager.
However, a common response was also to welcome the verdict and champion fair markets as the outcome everybody desires. Speaking on a panel with Mr Englander, Lee Ainslie, head of Maverick Capital Management, said that his biggest fear had been that a not-guilty verdict in the Galleon case would have prompted a wide range of regulatory changes.