Whitman Says He Spoke to Khan After She Tried to Tip Him

Whitman Capital LLC’s Doug Whitman told jurors that he continued to seek information from Roomy Khan, a key prosecution witness against him, even after he concluded she had tried to pass him illegal inside information.

Whitman, 54, testified yesterday in his criminal insider trading trial in Manhattan federal court that he grew suspicious in a phone conversation with Khan in April 2006 that she was getting specific revenue figures from an executive at Polycom Inc. Whitman, who said he didn’t trade based on what Khan told him on the call, said today that he continued to ask her to seek information from the executive, Sunil Bhalla.

Assistant U.S. Attorney Christopher LaVigne questioned Whitman about conversations he had with Khan in 2008, in which he tried to persuade her to contact Bhalla for additional tips on earnings at Polycom, a maker of video-conferencing equipment. Khan, who testified earlier in the trial, said Whitman often “hounded” her to get information from Bhalla.

Whitman is charged with trading on illegal inside information about Polycom, Google Inc. and Marvell Technology Group Ltd. He claims his trades were based on legitimate research on the companies, not illicit tips. If convicted, he faces as long as five years in prison on each conspiracy charge and 20 years on each securities fraud charge.

Whitman, the first defendant to elect to testify at a trial in the U.S. government’s nationwide crackdown on insider trading at hedge funds, was on the stand for a third day. LaVigne began cross-examining him this morning.

Khan Plea

Khan pleaded guilty in 2009 and is cooperating with the government’s insider trading investigation.

Steven Mark Bauer, who represented Bhalla in a civil case brought by the U.S. Securities and Exchange Commission, didn’t return a call yesterday seeking comment on Whitman’s testimony.

Bhalla in September agreed to pay $85,000 and was barred from serving as an officer or a director of a public company for five years to settle the SEC lawsuit.

In his testimony yesterday, Whitman said he suspected several times that Khan had inside information, including about pending takeover bids for Hilton Hotels Inc. and Kronos Inc. Whitman testified that he didn’t make any trades based on the information.

Whitman’s ‘Moles’

LaVigne questioned Whitman about his use of the word “moles” in discussing sources of information used by Khan and Karl Motey, another cooperating witness who testified he gave tips to the hedge-fund manager. Khan testified that Whitman used “moles” to refer to sources of inside information.

Answering questions from his own lawyer this afternoon, Whitman said a “mole” is “someone who’s knowledgeable on the subject or knowledgeable on the company.”

LaVigne also asked Whitman about a secretly recorded September 2008 phone call in which he urged Khan to contact Bhalla for Polycom information.

“You know it’s easy for me, for them to connect my calls to him,” Khan said. Whitman suggested she use an Internet-based Skype phone number to avoid being caught.

Toward the end of the conversation, in which Khan said she was reluctant to call Bhalla, Whitman asked her: “What value do you have if you’re not a slimeball?”

Whitman frequently characterized the information he got from Bhalla and other company insiders as “color,” or non-confidential, information. He contrasted color information with specific financial figures, which he said he understood to be inside information.

‘Not OK’

“To know the number, if you get it, you know, the exact number, is not OK,” Whitman testified.

Khan testified that in 2007 she passed detailed Google earnings figures to Whitman from Shammara Hussain, an employee at an investor relations consulting firm that was working with Google at the time.

Hussain agreed in June 2011 to settle SEC claims against her for $48,000. She hasn’t been charged criminally. Robert Knuts, who represented Hussain in the SEC case, didn’t return a voice-mail yesterday seeking comment on the testimony.

Whitman testified that he didn’t use information from Khan in his decision to buy Google put options in July 2007. He said he didn’t believe Khan when she said she got information from a friend working for an outside investor relations firm.

A week or two after selling the options, at a profit of $590,000, Whitman testified, Khan told him that her source on the Google tip wanted to be paid for the information. It was only then that Whitman believed Khan had gotten inside information, he said.

U.S. District Judge Jed Rakoff, who is presiding over Whitman’s trial, has said he expects the jury will begin deliberations by the end of this week.

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

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