Hedge Funds Have Started To Use This Perfectly Legal Strategy To Get An Edge

With sagging profits in recent years, hedge funds have looked to any possible strategy for an investment edge.

Now they are using one readily available to everyone - the Freedom of Information Act.

The Wall Street Journal's Brody Mullins and Christopher Weaver report that sophisticated investors are using FOIA as a way to obtain market-moving information about various companies. An FDA report on a pharmaceutical company would be one example. From the Journal:

A review by The Wall Street Journal of more than 100,000 of the roughly three million FOIA requests filed over the past five years, including all of those sent to the FDA, shows that investors use the process to troll for all kinds of information. They ask the Environmental Protection Agency about pollution regulations, the Department of Energy about grants for energy-efficient vehicles, and the Securities and Exchange Commission about whether publicly held companies are under investigation.

The Journal found that SAC Capital, Steve Cohen's embattled firm, is particularly interested in the FOIA strategy. And while SAC may be facing legal action for other alleged wrongdoings, FOIA is perfectly legal.

"Investors say they rarely make trades solely based on information obtained through the open-records law, but that such material helps them to piece together investment strategies or evaluate a company's prospects," according to the Journal.

Read the full report at the Wall Street Journal »