SEC Raids Offices of NY Hedge Funds: What is Considered "Legal Market Intelligence" in this Environment??

Last week the SEC raided many offices of small to medium hedge funds.  Research companies pay experts who provide information to their clients – typically information that is used to trade.  This is now being looked at as insider information.  The web set off by the Galleon investigation has launched a massive investigation,  one which is now going to put expert services companies out of business.  Hedge funds being investigated are also being put out of business – and meanwhile what does this have to do with the financial crisis?   Is the SEC are looking to flex their muscles in a post-Madoff environment to make the public believe they are on the case?  In any case, if the SEC is trying to send a message to hedge fund community – it is working.  Expert network firms, essentially those who create market intelligence and inform the financial community of current goings on in the business community will probably dry up and go away as a result of this.   Firms such as Risk Metrics and research methodology firms that use open market research to provide an external view on supply chain conditions will probably not be impacted.  However, the probe will also extend into research houses where people are surveying customers or talking to employees.  Which begs the question:  what research can one legally use?  Inside trading is such a broad, and gray concept, that many organizations may shy away from any external research that even smells like a possible insider deal.  This talk around level playing fields may end up in a situation where no one knows what is going on inside any companies – and no one wants to use any research anywhere – which means less transparency.  And all it takes is one trader who traded on inside information to trigger an exploration.  The amount of money is not significant (millions of dollars when compared to the grand scheme of the bailout for instance).  It is peanuts but it grabs the headlines.  Silliness, but seriousness on the other hand: there is nothing silly about going out of business.