Doug Whitman, the founder of Whitman Capital LLC, was denied requests to dismiss insider-trading charges against him and suppress wiretap evidence gathered by the U.S.
U.S. District Judge Jed Rakoff rejected Whitman’s requests at a hearing today in New York, citing his ruling allowing prosecutors to use wiretap evidence in the insider-trading case against former Goldman Sachs Group Inc. director Rajat Gupta.
Whitman was indicted by federal prosecutors in New York in February on charges that he took part in two separate insider-trading schemes. Prosecutors allege he traded on illegal tips involving Google Inc., Polycom Inc. and Marvell Technology Group Ltd. to make more than $900,000 for his Menlo Park, California-based hedge fund.
He’s charged with two counts of conspiracy to commit securities fraud and two counts of securities fraud. If convicted, Whitman faces as long as five years in prison on each conspiracy charge and 20 years on each securities fraud charge. The trial is scheduled to begin July 30.
Prosecutors allege Whitman received material nonpublic information from Roomy Khan, the former Intel Corp. executive who aided the prosecution of hedge-fund manager Raj Rajaratnam, and Karl Motey, an independent consultant who has pleaded guilty to insider trading and is cooperating with the U.S.
Whitman’s lawyer, Bradford Berenson, argued today that his client had no idea where Khan and Motey got their information or whether it had been improperly obtained.
“There is too high a risk based on how this indictment reads, that Mr. Whitman has been indicted for having conversations with Mr. Motey and Ms. Khan that he had no reason to know were criminal,” Berenson said.
The lawyer said his client hired Motey to do legitimate research and didn’t know if Motey’s sources breached their fiduciary duty by giving him the information Whitman then traded on.
The case has “taken a wrecking ball to Mr. Whitman’s life and career,” Berenson said. Whitman operated a hedge fund which focused on technology companies and was intensely research-driven, the lawyer said.
“Mr. Whitman employs people like Karl Motey to help him do research,” Berenson said. “In those kinds of situations, if he does not know where or how or who Mr. Motey gets his information from, how is he ever to know that he can’t trade on the information that he’s hearing?”
Rakoff said he would allow prosecutors to present their evidence to the jury and that they will have to prove that Whitman knew the information he received wasn’t public.
Whitman’s lawyers said they need more information from the U.S. to prepare a defense, including the identities of sources of alleged tips and the timing of the conversations and trades.
In addition to testimony from Khan and Motey, prosecutors said their evidence against Whitman includes consensual recordings and court-ordered wiretaps of phone conversations.
“The evidence will show that Mr. Whitman knew this information was provided by Khan and Motey by insiders corruptly,” Assistant U.S. Attorney Chris LaVigne said.
The criminal case is U.S. v. Whitman, 12-cr-00125, and the civil case is Securities and Exchange Commission v. Whitman, 12-cv-01055, U.S. District Court, Southern District of New York (Manhattan).