Whitman Capital LLC hedge fund founder Doug Whitman was convicted of insider trading following a trial in which he spent more than two days on the stand telling jurors he was innocent.
A jury in Manhattan federal court yesterday found Whitman, 54, guilty of two counts of conspiracy for trading on illegal tips about Polycom Inc. and Google Inc., and two counts of securities fraud for trading in Google, Polycom and Marvell Technology Group Ltd. Securities fraud carries a maximum sentence of as long as 20 years in prison.
Prosecutors alleged that Whitman made $900,000 for his Menlo Park, California-based hedge fund based on illicit tips from technology firm insiders, including Roomy Khan, a former Intel Corp. executive who was at the center of the biggest stock-tipping probe in U.S. history. Khan, a witness at Whitman’s trial, twice pleaded guilty to passing inside information to Galleon Group LLC fund manager Raj Rajaratnam.
“Douglas Whitman now joins the grim procession of convicted Wall Street professionals who decided that the rules don’t apply to them,” said Manhattan U.S. Attorney Preet Bharara in a statement yesterday. “The rules do apply.”
The nine women and three men on the jury deliberated less than a day before reaching a decision. They declined to comment after leaving court, saying they had made a pact not to discuss their decision.
U.S. District Court Judge Jed Rakoff, who presided over the trial, which began July 30, set Whitman’s sentencing for Dec. 20. He allowed Whitman to remain free on bond.
Whitman is the first defendant in the government’s crackdown on hedge-fund insider trading to testify at trial. Jurors also heard from three witnesses who pleaded guilty to passing illegal tips to Whitman, including Khan.
William McBride, a spokesman for Whitman, and his lawyer David Anderson didn’t have an immediate comment on the verdict. Bradford Berenson, a lawyer for Whitman, asked Rakoff after the verdict was announced for more time to file post-trial motion papers. The judge told defense lawyers he would give them until Sept. 28 to file.
Whitman’s conviction follows 66 insider trading guilty pleas and verdicts won by prosecutors in Bharara’s office since August 2009, including the criminal prosecution of Galleon co-founder Rajaratnam, the largest insider-trading case in U.S. history.
The cases stem from a law-enforcement initiative begun five years ago by the Federal Bureau of Investigation and Bharara’s office called “Operation Perfect Hedge.”
Janice Fedarcyk, the head of the FBI’s New York office, said Perfect Hedge and the Galleon case should continue to deter those who would consider using inside information.
“Mr. Whitman’s conviction today on all counts is another victory in the FBI’s efforts to clean up corruption and insider trading on Wall Street,” she said yesterday. “Those who break the law should be on notice: It’s not that we haven’t arrested you; it’s that we haven’t arrested you yet.”
In addition to Khan, who was Whitman’s neighbor in Atherton, California, jurors also heard testimony from Karl Motey, a consultant hired by Whitman, and Wesley Wang, a former Whitman Capital intern who worked for Trellus Management and Sigma Capital, a division of SAC Capital Advisors LP.
Khan, Motey and Wang all pleaded guilty and agreed to cooperate and testify as government witnesses in hopes of receiving lighter sentences.
While on the stand, Whitman claimed the three falsely implicated him to avoid prison. Whitman testified he never intentionally traded on improper information. He said his trades were based on research on the companies, not illegal tips.
In his closing argument for Whitman, Anderson urged jurors to reject the testimony of the government’s cooperating witnesses, particularly Khan.
Prosecutors claimed 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.
“Mr. Whitman had a hedge fund with his name on the door, with rules against insider trading,” Bharara said in the statement. “He flouted those rules, tarnished his name and now is a convicted felon facing imprisonment.”
The case is U.S. v. Whitman, 12-cr-00125, U.S. District Court, Southern District of New York (Manhattan).