[Groty]

There is a big difference between "insider information" and material non-public information. Hedge funds happily pay for information they think will give them an edge. They retain the services of industry specific consultants, market research firms, forensic accounting specialists to identify bogus accounting at firms to short, bankruptcy specialists and valuation specialists when they're looking at distressed situations, etc. Anything for an edge.

Suppose I'm a hedgie who exclusively retains the best market research firm in the world who specializes in identifying sales trends at retail establishments.

I want information on sales trends at ABC Corp. and XYZ Corp. The firm I retain spends 6-8 weeks conducting surveys at malls, counting customers browsing the stores in various cities, conducting interviews with suppliers of both ABC and XYZ, etc. Finally, the firm reports back to me that based on its world class research, it believes ABC Corp. will have a terrific selling season, offering few promotions and discounts. It believes XYZ Corp. missed an important shift in a fashion trend, sales will go poorly, and it anticipates alot of promotional activity and discounting to clear inventory. I review the sell side research and believe the Street expectations underestimate the strength at ABC and the weakness at XYZ, so I go long ABC and short XYZ.

I paid the market researcher to give me what I believe is proprietary information that is not being fully discounted by the market. I laugh at the guys selling their cheap ABC shares to me, and snicker at the guys who are taking the other side of my XYZ shorts.

This type of thing happens every day.