Whitman Capital Founder Traded on Inside Tips, U.S. Says

Doug Whitman, the founder of Whitman Capital LLC, made almost $1 million for his hedge fund by trading on inside tips about Google Inc., Polycom Inc. and Marvell Technology Group Ltd., a prosecutor told jurors.

“The defendant and his partners in crime decided the rules of stock trading did not apply,” Assistant U.S. Attorney Christopher LaVigne said yesterday in his opening statement in the insider-trading trial in Manhattan federal court.

LaVigne told jurors they will hear testimony from three of Whitman’s sources of illicit information, all of whom have pleaded guilty and are cooperating with the government.

Karl Motey, an independent consultant hired by Whitman, passed him inside information from two Marvell employees, LaVigne said. He said Roomy Khan, a former Intel Corp. executive who was Whitman’s neighbor in Atherton, California, passed Whitman tips from Google and Polycom. Jurors will also hear from Wesley Wang, a Whitman friend and consultant who admitted passing tips about Cisco Systems Inc., Polycom and Marvell, LaVigne said.

LaVigne told jurors that Whitman sent flowers to Khan after making money on her tip on Google earnings.

Denies Charges

Whitman denies the charges against him.

David Anderson, a lawyer for Whitman, said in his opening statement yesterday that his client made money from trading on legitimate information about technology companies, by trying to determine whether the information company officials give their investors is true.

Anderson urged jurors not to believe Motey, Khan and Wang, whom he called “criminals and liars” testifying against Whitman in hopes of avoiding prison.

Khan has twice pleaded guilty to charges she passed inside information to Galleon Group LLC co-founder Raj Rajaratnam, in 2001 and in 2009. Khan’s cooperation after her October 2009 arrest helped the government obtain wiretap warrants and played a crucial role in the U.S. investigation of insider trading at hedge funds.

Rajaratnam, who was convicted of 14 criminal counts in May 2011, is serving an 11-year sentence in a Massachusetts prison. He’s appealing his conviction.

“Khan has never been held to account for her crimes,” Anderson told the jury. “She has never been held to account for her lies. She’s hoping you convict Mr. Whitman so she can remain free.”

Jury Pool

The panel of 12 jurors and three alternates, including five teachers, was selected yesterday.

Others from the jury pool were dismissed for connections to investment banking firms, admitted distrust of “Wall Street in general” and, in one case, for changing a dollar for one of the attorneys buying coffee this morning.

U.S. District Judge Jed Rakoff, who is overseeing the trial in Manhattan federal court, said he was particularly disappointed one member of the pool was not selected -- his youngest daughter.

“It would be the first time ever that she followed the court’s instructions,” Rakoff said, laughing.

The case is U.S. v. Whitman, 12-cr-00125, U.S. District Court, Southern District of New York (Manhattan).

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