NEW YORK, Feb 2 (Reuters) – Expert network firm Gerson Lehrman Group has hired a Washington lobby firm with close ties to the Democratic party as it braces for fallout from a U.S. insider trading investigation, according to two people familiar with the matter.

Gerson Lehrman, the largest of a group of firms that specialize in matching hedge funds with industry consultants, began interviewing lobbying firms a few weeks ago and selected Elmendorf Ryan in the past few days, said these people, who asked not to be named because they were not authorized to disclose the information to the media.

The hiring of Elmendorf Ryan comes as federal prosecutors in New York have charged at least eight people associated with a rival expert network firm with giving confidential corporate information to traders and analysts with hedge funds.

The unfolding investigation has caused some hedge funds to scale back their use of expert network firms.

Steven Elmendorf, who heads the lobbying firm and served as a senior adviser to former House Democratic Leader Richard Gephardt for 12 years, declined to comment, saying he does not talk to the media about his clients.

A spokesman for New York-based Gerson Lehrman declined to comment.

A person familiar with Gerson Lehrman, who declined to be identified, said the expert network firm decided it needed to hire a lobbying firm to not only represent its interests in Washington, but also gather information for its hedge fund clients about new financial regulations.

NEW YORK, Jan 31 (Reuters) – Technology-focused hedge fund STG Capital, which did business with an expert network firm that has figured prominently in an ongoing U.S. insider trading investigation, is shutting down, said people familiar with the situation.

Steven T. Glass, the founder of STG, which once had more than $200 million under management, notified investors last week he was shutting down his fund, said one investor familiar with the situation, who declined to be identified.

STG is the second New York hedge fund to shut down in the wake of a series of arrests of people associated with Primary Global Research, a California-based expert network firm that matches hedge funds with industry consultants.

The Wall Street Journal reported on Monday that Barai Capital Management, a small $80 million hedge fund raided by federal agents in November, is also closing.

Four people familiar with the investigation said both STG and Barai regularly employed Primary Global consultants to gather information on tech stocks.

Glass said in an email that his fund’s relationship with Primary Global had nothing to do with the closing, but he declined to elaborate.

“You are factually incorrect in much of that, sir,” he said. “As I informed our investors last week, assets were not at a critical mass to sustain the business.”

NEW YORK (Reuters) – Expert network firms, currently the focus of a major U.S. insider trading investigation, have never had to work too hard to find midlevel corporate executives willing to moonlight as paid consultants.

With consultants earning anywhere from $200 to $1,000 an hour for a meeting with hedge fund traders, working for an expert network firm — an intermediary company that matches industry consultants with hedge funds — is an easy way for an executive to pad his bank account.

The ongoing federal investigation is revealing that some high-demand consultants, especially ones willing to pass on confidential corporate information, were sometimes earning double their salaries by moonlighting with an expert network firm. Some of the consultants arrested so far in the investigation raked in as much as $200,000 (125,000 pounds) in fees.

The high hourly fees paid by expert network firms to consultants, many of whom make only modest salaries at their full-time jobs, is raising questions about whether the potential to earn all this extra cash is what tempts some consultants to break the law and provide hedge funds with inside information.

“In a situation where somebody is making $200,000, that’s clearly more than a little bit of outside work,” said Jeff Morgan, president and chief executive of the National Investor Relations Institute in Washington. “Your average person may get enticed or sucked into this.”

A case in point is Winifred Jiau, charged by federal prosecutors on December 29 with passing on confidential corporate information about two technology companies to a number of hedge fund traders and analysts.

Prosecutors in New York claim that Jiau, as a consultant with California-based expert network firm Primary Global Research, earned $200,000 in fees from hedge funds over a two-year period. That is on a par with the type of money she was making as an independent trader.