Case in point: Apple Inc., one of the hottest stocks of the past year, for which an entire industry of well-known and obscure analysts and "expert networks" scramble to report every detail of the company's undisclosed production plans.
The proliferation of such research raises questions about where prosecutors will draw the lines that define insider trading.
Where once insider-trading cases were built around a single tip about a merger, for example, prosecutors appear to be broadening into new territory. They are examining how arcane, confidential, but presumably routine data may move company stocks.
"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," said former Securities and Exchange Commissioner Paul Atkins in a video interview with The Wall Street Journal. "If you go in and pay the mail clerk to give you special information, that's not proper."
Last week, The Wall Street Journal reported that a major insider-trading investigation includes an examination of small research firms including Broadband Research in Portland, Ore., run by John Kinnucan.
Investigators are also looking into whether so-called consultants for expert network companies, which connect investors with employees of companies for a fee, have passed inside information to clients.
Mr. Kinnucan has said he has done nothing wrong and does not traffic in inside information.
Small research outfits such as Mr. Kinnucan's often rely on information from manufacturers' representatives to technology companies to gauge how a business is performing. Such information is referred to broadly as a channel check.
Such channel-check information has become crucial to Apple traders, who have come to expect a weekly dose of information from channel checks about Apple's iPad and iPod businesses.
Analysts relay the information—known in the business as "build plans"—weekly to savvy technology investors, who often dart in and out of heavily-traded Apple shares. Such information has grown to be almost as important as Apple earnings, able to move shares throughout the quarter.
An Apple spokesman says the company doesn't release the information about its production but declined to comment further.
Last week, for instance, RBC Capital Markets analyst Mahesh Sanganeria sent a note to clients reporting that the December quarter forecast for the iPad had increased but that the forecast for production for 2011 remains about 40 million units.
Mr. Sanganeria went on to say the "current version of iPad stops build in January and refresh version starts in January." Apple shares closed at $306.73, compared with $308.43 the day before the report was issued.
A few weeks earlier, Rodman & Redshaw issued a report to clients that was picked up by a popular website that compiles such reports. "Rodman's supply chain checks indicate that monthly iPad production volumes are not expected to exceed much beyond 2 million units into year end." The report went on to say that street estimates for Apple's December quarter "may end up being a stretch goal." Apple shares dropped sharply on the news, closing at $308.03, compared to $316.65 the day before.
Prosecutors' examination of researchers such as Mr. Kinnucan, as well as expert network firms has left investors wary about how to research stocks.
Hedge funds and investors have been meeting with compliance officials and lawyers in an effort to try to decipher whether such information could cross the line.
On Tuesday, for instance, Susquehanna Financial Group hosted a conference call with Lindi Beaudreault, of law firm Shearman & Sterling, about how the focus by regulators is more on whether there was a breach of confidential than if the information is material.
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