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ESG's Friends & Family Deals

Analyst firm says it's taken shares from 12 startups in lieu of cash. Is it on the up-and-up? UPDATED 5PM

Since opening its doors in November 1999, the Enterprise Storage Group Inc. -- led by salty-tongued founder Steve Duplessie -- has established itself as the crme de la crème of research and consulting firms catering to the storage industry. But questions about some of the steps ESG has taken along the way are raising eyebrows.

The firm counts a significant portion of the vendors in the business as clients, from such giants as EMC Corp. (NYSE: EMC) and Cisco Systems Inc. (Nasdaq: CSCO) down to some of the smallest early-stage startups. ESG analysts are among the most widely quoted by IT trade publications (including Byte and Switch) looking for quick insight into market trends.

One of ESG's primary selling points is that it presents itself as an impartial, unbiased observer -- that its analysts will tell it like it is under any and all circumstances. "ESG's greatest strength is our integrity," reads the mission statement on the company's Website. "We always provide an informed opinion and we always tell the truth... With ESG you get the whole story, not just the 'safe' story. We may not be correct 100% of the time, but you can always count on our honesty."

But Byte and Switch has recently learned that ESG has accepted shares in 12 pre-IPO storage companies in lieu of cash in exchange for consulting and research work. On its face, it appears that this type of arrangement would give ESG obvious conflicts of interest, because the firm has a financial stake in the success of certain companies.

Duplessie, however, says ESG's ownership of shares in certain companies for which it provides consulting -- and about which it's supposed to be providing "independent" analysis -- is, in fact, really no big deal.

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