Scores of arrests and the indictment of SAC Capital have Wall Street spooked. But what’s the crime exactly? The SEC and the Supreme Court disagree. So nobody’s sure — and that’s how regulators like it. 

“We used to be able to talk to investigators on drug trials,” says Source A, a hedge fund portfolio manager. Like all the analysts, research directors, and portfolio managers who cooperated for this article, Source A requested anonymity. People don’t want their names in a story about gray areas of equities research that border on insider trading.

Four or five years ago, Source A continues, he and other health care analysts still used to get in touch with doctors who were serving as investigators in Phase II or Phase III trials, studies required by the U.S. Food and Drug Administration before a pharmaceutical can be approved as safe and effective. He might have been able to reach as many as eight out of 10 investigators running a study, and sometimes he could reach the principal investigator, the overseer of the whole thing.

“Say each investigator has 11 patients,” Source A continues. “You could almost go patient by patient,” asking how they were doing.

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