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The

Securities and Exchange Commission

has begun gathering information about the release of nonpublic research data that occurs ahead of the closely watched annual meeting of the American Society of Clinical Oncology, according to sources familiar with the situation.

As I've reported extensively over the past two years, ASCO policies have allowed for the selective disclosure of potentially market-moving research abstracts to its members in advance of its conference. My reporting also has highlighted how people with this early, sneak peek at important drug-research data can trade on that information before the general investing public gets a chance to do the same.

The SEC has begun gathering information on both sides of this story, sources tell me. At this point, the SEC inquiry doesn't appear to be at the level of a formal, or even an informal, investigation. But the agency is interested in understanding the ASCO situation and trying to figure out whether any laws are being broken, or if this situation represents a legal loophole in need of closure. Contacted Wednesday, an ASCO representative said the organization had no knowledge of any recent SEC inquiry.

It's about time. Ever since I first heard the term "ASCO effect," I've wondered how such an obvious sidestep around Regulation Fair Disclosure could be allowed to stand. ASCO's stance has always been that as a nonprofit, the organization was not subject to SEC jurisdiction. Then the group argued that its research abstracts didn't even contain material information, because the data highlighted are usually preliminary. Finally, ASCO acknowledged that its selective disclosure practices run counter to the spirit of the law, and it's made some efforts to take corrective actions, albeit with little real effect.

This year, ASCO finally seemed to get the message. Adopting a new, get-tough policy, the organization says research abstracts will not be available until the first day of its annual meeting, which begins on Saturday, May 31.

Most other medical research organizations have decided to deal with the Reg FD issue by simply making a public release of research abstracts -- available to everyone -- in advance of their respective meetings.

As the investor watchdog, the SEC is charged with looking into cases in which investors might be trading on material, nonpublic information. But this particular situation is pretty messy, and it's not easy to see who might be considered the bad guys here.

Typical cases of insider trading tend to be clandestine in nature, but ASCO openly distributes market-moving information to a select group of people. Isn't that bad?

But last year, ASCO required its members to sign confidentiality agreements, asking them not to divulge or trade on this information. Is that enough? Can people really be expected not to trade on this information, especially given the numerous reports issued by sell-side analysts, who routinely used ASCO research abstracts to advise clients on what stocks to buy and sell in advance of the meeting?

From a practical standpoint, none of the ASCO policies have worked very well at all -- just take a look at the charts of companies with data set for release at their recent annual meetings.

In 2001, the "ASCO effect" was evident in the stock of

ImClone Systems

(IMCL)

.

In 2002, it was stocks such as

Cell Therapeutics

(CTIC) - Get Report

,

Millennium Pharmaceuticals

(MLNM)

and

Genentech

(DNA)

.

For a select group of people, every April (when the research abstracts were prereleased) was like a second Christmas. And ASCO was Santa Claus!

The question now is: Will the SEC be the Grinch?

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Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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