Whitman Capital LLC’s Doug Whitman, testifying in his own defense at his insider trading trial, told jurors he didn’t trade in Polycom Inc. stock based on information from Roomy Khan, one of the government’s key witnesses.
Whitman, 54, who is charged with trading on illegal tips on Polycom, Google Inc. and Marvell Technology Group Ltd., disputed Khan’s testimony that he often “hounded” her to get inside information on Polycom earnings from her friend Sunil Bhalla, a senior vice president at the company. Under questioning from defense lawyer David Anderson, Whitman said Khan was the one who brought up Bhalla in a phone conversation in January 2006.
“She told me not to do anything until she talked to Sunil Bhalla,” Whitman testified yesterday in Manhattan federal court. “I really didn’t care. We had already started our investment decision.”
Whitman is the first defendant to testify at a trial in the government’s crackdown on insider trading at hedge funds. The decision to testify leaves Whitman open to cross-examination from prosecutors, which will begin as early as today.
Whitman testified about his company’s history of investing in Pleasanton, California-based Polycom, a maker of videoconferencing equipment, and his decision to buy the company’s shares. He told jurors his hedge fund, which he founded in 1994, invested in Polycom beginning with the company’s 1996 initial public offering.
The firm based its investment decisions on legitimate research, including talks with company management, Whitman said.
Polycom and Marvell were among the 20-to-30 technology stocks that formed Whitman Capital’s core holdings, Whitman said. At times the firm invested more than 15 percent of the $100 million it managed in Polycom stock, he told jurors. Marvell holdings ranged as high as 20 percent.
Whitman said he met Khan, a former Intel Corp. executive, in 2002 and talked to her by phone about once a week. He called her “very smart” and said she knew a lot about the industry.
“We probably talked most about her personal life, more than anything else,” Whitman testified. “And we also talked about stocks, industry things.”
Whitman said he didn’t know that Khan had pleaded guilty in 2001 to passing confidential earnings information from Intel to Galleon Group LLC co-founder Raj Rajaratnam. Khan, who pleaded guilty to a new set of insider trading charges in 2009, is cooperating with the government.
In addition to Khan, jurors have heard testimony from two other witnesses who pleaded guilty and are cooperating with the government: Karl Motey, a consultant hired by Whitman, and Wesley Wang, a consultant and former Whitman Capital intern. Prosecutors presented instant messages and telephone recordings they claim show Whitman traded on confidential company information.
If convicted, Whitman faces as long as five years in prison on each conspiracy charge and 20 years on each securities fraud charge.
The government rested its case yesterday after presenting almost two weeks of testimony. The trial began July 30.
The final prosecution witness, a Menlo Park, California-based florist, Jeffrey Adair, testified that in July 2009 Whitman sent a $125 bouquet to Khan. Prosecutors claim Whitman, whose firm was based in Menlo Park, sent the flowers to thank Khan for a tip on Google’s earnings that hadn’t been publicly announced.
A note accompanying the flowers read, “thank you from whitman capital,” according to an order from Adair’s records.
Whitman’s lawyers yesterday also asked U.S. District Judge Jed Rakoff to let them read to jurors Bhalla’s 2011 testimony in a civil suit that he never passed illegal Polycom information to Khan. Rakoff has yet to rule on the request.
The case is U.S. v. Whitman, 1:12-cr-00125, U.S. District Court, Southern District of New York (Manhattan).