Less than a month later, Mr. Fleishman was arrested in another round of insider trading cases.
“We were shocked, personally, because we’ve got families to feed, and we knew that after the investigations, our jobs were coming to an end,” said the employee, who like others interviewed for this article spoke on the condition of anonymity for fear of reprisal or for lack of permission to speak publicly.
Now a frigid chill is sweeping the expert-network industry.
In the midst of a sprawling insider trading investigation, the Wall Street matchmakers — who connect large investors with outside experts — are struggling to hold onto clients. Many financial firms, eager to avoid the whiff of scandal, have suspended or pulled back on the use of expert networks. These firms include bulge-bracket investment banks, private equity firms and hedge funds, like Och-Ziff Capital Management Group and Balyasny Asset Management.
“We’ve completely stopped using them, indefinitely, on the advice of our legal counsel,” said an employee at a private equity firm.
Others are reviewing their policies around expert networks. Credit Suisse will continue to use such companies for equity research, but it is taking steps to bar other departments from using the services, said one person familiar with the situation. Citigroup is in the process of evaluating its rules, according to a person close to the company.
“It’s prudent to take a time out right now and reassess how expert networks are used,” said an employee at another large money manager.
The sudden cold shoulder is understandable.
Over the last two months, federal authorities have raided a slew of hedge funds and mutual funds and arrested several consultants and employees tied to Primary Global. In November, the government accused Mr. Chu of helping hedge funds obtain nonpublic information. A month later prosecutors charged Mr. Fleishman with fraud, accusing him of facilitating the sharing of confidential information.
Primary Global and Mr. Chu’s lawyer, Jeffrey Plotkin, declined to comment. Mr. Fleishman’s lawyer, Stuart Gasney, could not be reached for comment.
Although the flurry of arrests has largely centered on Primary Global, the scandal has disrupted the entire industry. Some say expert networks will have to ratchet up their compliance standards — or risk losing what is left of their business.