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Knowledge trades

Institutions must carefully evaluate their researchers’ relationships with Wall Street.

Few researchers would care to put a price on their professional reputation. Yet when neurologist Sidney Gilman decided to divulge confidential clinical-trial data to a hedge-fund manager, he did exactly that. Court documents show that Gilman earned more than US$100,000 for his illegal tips about the failure of an experimental drug for Alzheimer’s disease; the hedge fund made $276 million in direct gains and avoided losses. After he was caught, Gilman lost not only the cash but also his career, retiring from his position at the University of Michigan Medical School in Ann Arbor.

In recent conversations with a Nature reporter, several academics converged in their assessment of Gilman’s case,which became the biggest insider-trading case in US history: “stupid”.

Nevertheless, many of these same academics continue to serve as consultants for the investment industry, where knowledge is money and confidential knowledge is the most precious currency of all. Like Gilman, they participate in ‘expert network’ firms that bring together academic specialists and clients who seek technical information (see page 280). Such firms do not work exclusively for the investment industry, but hedge funds make up a sizeable part of their business. Expert networks make it easier for researchers to dabble at advising Wall Street, often for clients who do not disclose the companies for which they work.

Undoubtedly, the vast majority of consultations for financial firms do not result in illegal exchanges. Gilman and his alleged hedge-fund co-conspirator were clearly mindful of their transgressions and went to some lengths to evade the barriers to insider trading erected by the expert network that united them in the first place. Experts contacted by Nature were confident that they had never divulged confidential information. They were less confident about others, noting that less experienced or over-eager colleagues might be prone to a slip of the tongue here and there.

A small slip can move markets. Telltale cues from body language (a shift in a chair) and tone of voice (a hesitation, a cough) can speak volumes, as can the unguarded answer to one acute question slipped into an otherwise innocuous conversation. Indeed, journalists might find the techniques used by hedge-fund managers to dig out confidential information uncomfortably familiar. Many academics are trained to handle the press; few receive education in how to deal with the financial industry.

The cavalier attitude towards this work is disturbing. For busy physicians, recruitment letters from expert networks are part of a steady flow of surveys and consulting requests that clog their inboxes. Some of the researchers interviewed by Nature could not remember which expert networking firms they consult for. Consultations were often viewed as an easy way to pick up a little extra cash when time permits, and, if lucky, perhaps have an engaging conversation along the way.

Avoidance may be the best strategy to prevent accidental leaks.

This casual approach extends to institutions, many of which are well versed in negotiating the rocky road of conflicts of interest raised by consultations for the drug or medical-device industries, but have not explored the issues raised when advising hedge funds. Universities are already wrestling with the mounting requirements from federal funders for the reporting of potential conflicts of interest, and are unlikely to welcome yet another category of extracurricular activities to monitor.

All involved must take the relationship between researchers and Wall Street more seriously. Institutions should discuss the risks involved and, when warranted, take a proactive stance, perhaps using the Cleveland Clinic in Ohio as a guide. Since 2005, the clinic has instituted a special level of legal review for relationships between faculty members and the investment industry. Physicians who embark on these relationships are given special educational material — which might soon include the newspaper accounts of the Gilman case.

As US regulators cracked down on insider trading, some researchers cut their ties with the financial industry and expert networks for fear of being tainted by association. Those who still consult for Wall Street often say that they do so to help guide investment in their field. That aim is laudable, but it cannot be used to justify consultation on topics that could overlap with privileged information. For example, a researcher who works on a clinical trial for an experimental diabetes drug should think twice before consulting with a hedge fund about diabetes drugs.

Avoidance may be the best strategy to prevent accidental leaks. The Gerson Lehrman Group, the expert network based in New York that employed Gilman, has policies in place to protect consultants from the consequences of unintended disclosure. Two stand out as potentially the most powerful: an academic can refuse a consultation if the subject matter might tread near confidential information; and he or she can abort a consultation — and still get paid — if a client presses for insider knowledge. So the solution is simple: when asked to disclose confidential information, hang up the phone.

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Insider trading sparks concerns 2013-Jan-11

Take a stand 2012-Jul-11

EU agencies accused of conflicts of interest 2012-May-15

Industry ties remain rife on panels for psychiatry manual 2012-Mar-13

NIH finalizes conflict-of-interest rules 2011-Aug-23

Conflict disclosure plan dropped 2011-Aug-01

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Knowledge trades. Nature 493, 271–272 (2013).

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