Whitman Capital Founder Gets 2 Years for Insider Trading
U.S. District Judge Jed Rakoff pronounced sentence yesterday in Manhattan federal court, also imposing one year of supervised release and a $250,000 fine. Whitman was convicted in August after a jury trial in which he spent more than two days on the witness stand proclaiming his innocence.
“I am terribly, terribly sorry,” said Whitman, who frequently became emotional as he addressed Rakoff. “This is something that haunts me today and will for the rest of my life.”
Prosecutors said Whitman, 55, made more than $900,000 for his Menlo Park, California-based hedge fund using 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 cofounder Raj Rajaratnam.
Whitman is the first defendant in the government’s crackdown on hedge-fund insider trading to testify at trial. He was found guilty of two counts of conspiracy and two counts of securities fraud.
Prosecutors in the office of Manhattan U.S. Attorney Preet Bharara have obtained more than 70 insider-trading guilty pleas and verdicts since August 2009, including the criminal prosecution of Rajaratnam.
Rakoff yesterday described Whitman as “basically a decent person” who was “cavalier and crude in his business dealings even when he wasn’t breaking the law.”
“Mr. Whitman was someone who had no compunctions about going across illegal lines that he was very well aware of and excusing them and even bringing those excuses into the courtroom when that served his interests,” Rakoff said.
Rakoff ordered Whitman to forfeit the $935,000 profit the U.S. claims he made from insider trades on Polycom and Google.
The U.S. asked Rakoff to sentence Whitman to more than five years in prison, citing his “repeated denials of wrongdoing and affirmative lies to cover it up,” including what prosecutors claimed was his false testimony at the trial.
Rakoff agreed with prosecutors that Whitman had lied on the stand.
“I think, frankly, he repeatedly perjured himself,” Rakoff said. “I think the evidence was quite overwhelming.”
Rakoff also agreed with the government that federal sentencing guidelines, which are advisory, called for Whitman to get from 51 to 63 months in prison. Rakoff, who frequently criticizes the sentencing guidelines, declined to follow them.
In court papers, Whitman said he was offered a plea deal a year ago that would have called for no more than six months’ jail time. He denied lying in court and argued that he has already suffered the loss of his profession, the end of his 20- year marriage and the humiliation of a public prosecution.
“He has been utterly and completely devastated by this,” David Rody, a Whitman lawyer, told Rakoff.
“Doug Whitman maintains his innocence and looks forward to vindication on appeal,” David Anderson, another Whitman lawyer, said in a statement.
Whitman asked Rakoff for a sentence of six months or less.
At Whitman’s request, Rakoff said he will recommend he be assigned to a federal prison in Lompoc, California. The judge said Whitman may remain free on bail while he appeals his conviction.
The case is U.S. v. Whitman, 12-cr-00125, U.S. District Court, Southern District of New York (Manhattan).
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