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‘Moles’ Gave Hedge-Fund Manager Whitman Tips, U.S. Says

‘Moles’ Gave Hedge-Fund Manager Whitman Illegal Tips, U.S. Says
Whitman Capital LLC ’s Doug Whitman is the first defendant in the government’s crackdown on hedge-fund insider trading to testify at trial. Photographer: Louis Lanzano/Bloomberg

Whitman Capital LLC’s Doug Whitman used illegal tips from company “moles” to make trades on Polycom Inc., Google Inc. and Marvell Technology Group Ltd., a prosecutor told jurors at the end of the hedge-fund manager’s criminal trial.

“Mr. Whitman absolutely knew what was allowed and what was not allowed, despite the story they spun up there on the witness stand,” Assistant U.S. Attorney Jillian Berman said in her closing argument today in Manhattan federal court.

Whitman, 54, is the first defendant in the government’s crackdown on hedge-fund insider trading to testify at trial, spending more than two days on the stand. Jurors also heard testimony from three witnesses who pleaded guilty to passing illegal tips and agreed to cooperate with prosecutors.

Whitman is charged with two counts of conspiracy and two counts of securities fraud. The securities-fraud charges carry a maximum 20-year sentence. The possible sentence on the conspiracy counts is five years. Jurors deliberated for about an hour today without reaching a verdict. They will continue considering the case next week.

Convicted insider-trading defendants sentenced in the Manhattan federal courthouse since the start of 2011 have been sentenced to an average of about 22 months in prison, according to a Bloomberg analysis of court records. Seven defendants who were convicted at trial, rather than pleading guilty, got an average of 58 months in prison.

Three Witnesses

Berman urged jurors to convict Whitman based on the testimony of the government’s witnesses along with trading records, recorded phone calls, instant messages and other evidence. During the trial, the jurors heard testimony from Roomy Khan, Karl Motey and Wesley Wang, who said they passed inside information to Whitman. All three have pleaded guilty and are cooperating with the government in hopes of receiving lighter sentences.

David Anderson, Whitman’s lawyer, attacked the three in his closing argument, particularly Khan, a former neighbor of Whitman’s in Atherton, California who admitted in her testimony she had “lied a number of times” to government investigators and others.

“The fact that Roomy Khan says something doesn’t mean a thing,” Anderson argued. “Roomy Khan has lost her relationship with the truth so long ago.”

Consultant Testimony

Anderson also urged the 12 jurors and three alternates to disregard the testimony of Motey, a consultant hired by Whitman, and Wang, a consultant who worked for Trellus Management and Sigma Capital, a division of SAC Capital Advisors LP.

Berman said that Khan gave Whitman detailed earnings information for Google in 2007, which she got from a woman at an outside investor-relations firm that was working with the Mountain View, California-based search engine company. Whitman allegedly used the information, that Google would miss analysts’ earnings expectations, to buy put options on the company’s stock. He made about $590,000 in less than 24 hours, after Google disclosed its quarterly financial results to the public, according to Berman.

The next day, Whitman sent a $125 bouquet of flowers to Khan with a note reading “thank you from whitman capital.”

Whitman claimed he sent the flowers because Khan, who also made money shorting Google shares, had been unhappy beforehand.

‘Nice Thing’

“I just thought it would be a nice thing to do,” Whitman testified.

Whitman also traded on Polycom earnings information from Khan and on Marvell tips that Motey passed him from two company executives, Berman said. Whitman made more than $900,000 for his fund from illegal trades, according to the government.

Anderson argued that Whitman is innocent because he had a good-faith belief he wasn’t trading on improper information.

Anderson said Whitman didn’t believe Khan when she gave him what prosecutors said was inside information on Google and Polycom. On several occasions when Whitman believed Khan actually had inside tips, about Polycom earnings in April 2006 and about planned acquisitions involving Hilton Hotels Inc. and Kronos Inc., he refrained from trading on it, Anderson said.

When Khan told Whitman her Google source wanted to be paid for the information she had provided, he told her she shouldn’t do it, Anderson told jurors.

Prosecutors in the office of U.S. Attorney Preet Bharara have won convictions or guilty pleas against 66 people charged with insider trading since August 2009.

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

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