Are brokerage firms and their clients abusing soft-dollar funds by directing payments to so-called expert networks and other middlemen in search of inside information?  The Wall Street Journal reports that regulators are shining the spotlight on this form of currency that can be used in a variety of ways, but largely is spent on investment research. 

SAC Capital Advisors, Steven Cohen's $12 billion hedge-fund firm, informed clients last week that federal authorities appear focused on soft-dollar payments.  SAC based that impression on a subpoena the firm received Monday afternoon, which it called "extraordinarily broad."

Federal prosecutors filed criminal charges on Wednesday against Don Ching Trang Chu, who worked for a California expert-network firm called Primary Global Research LLC - the complaint highlighted soft-dollar payments the firm earned for hooking up alleged tipsters with hedge-fund clients.  The criminal complaint against Mr. Chu alleged that Primary Global clients paid for the firm's research in part by sending trading - and the soft dollars that came along with it - to Primary Global's broker-dealer arm.

By focusing on insiders at big financial firms and corporations, and also little-known consultants who link them together, investigators reportedly are piecing together a web of relationships in an attempt to expose how suspicious trading frequently has gone undetected.  They're seeking communications, trading records and other data as the probe widens;  none of the subpoenaed companies are accused of wrongdoing. 

The probe has set off a wide-ranging debate about just what type of stock research might cross a line.  For instance, one question is whether assembling disparate pieces of information - in themselves not material - gives some traders a potentially illegal advantage.   [WSJournal, 11/27]