SEC investigates legality of ‘channel checks’

Some analysts could soon find themselves in hot water as the U.S. Securities and Exchange Commission has opened an investigation into the legality of “channel checks.” Channel checks refer to the practice whereby analysts contact inside sources at manufacturing companies in order to glean inside information. This information often has a tendency to move the market, of course, but the SEC is now trying to determine whether or not the practice should be legal. “Insider trading basically comes down to where you know or ought to know that the person from whom you’re getting this information has a duty to someone else to keep it confidential,” former SEC commissioner Paul Atkins told The Wall Street Journal. “If you go in and pay the mail clerk to give you special information, that’s not proper.” Beyond just the analysts involved, the SEC is also investigating “expert networks,” which get paid to connect investors with inside sources.

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