Kinnucan Inside Tips Calls for Triple Penalty, SEC Says

An expert-networker sentenced to more than four years in prison for passing tips to hedge fund clients should pay a triple penalty in a civil case because of his “egregious” behavior, U.S. regulators said.

John Kinnucan, who pleaded guilty to insider trading and was sentenced for his criminal conduct, is still defending himself in the lawsuit over his “flagrant and involved” actions, the U.S. Securities and Exchange Commission said in a court filing yesterday.

The SEC seeks a summary judgment granting its request without a trial that Kinnucan be ordered to pay $4.75 million in penalties for the insider-trading scheme that lasted at least two years.

“He founded a business, Broadband, designed to profit on his illegally obtaining material nonpublic information,” Matthew Watkins, an SEC lawyer, said in the filing. “He corrupted his sources of information -- employees of the public companies F5, Sandisk and Flextronics -- by providing them cash and other non-cash benefits like vacations and ski trips.”

Kinnucan told regulators this month that he wouldn’t resolve the lawsuit and is now acting as his own lawyer, Watkins said.

“Although Kinnucan pleaded guilty to securities fraud, he has not accepted responsibility for his misconduct before the commission,” Watkins said.

SanDisk, F5

As the founder of Broadband Research LLC, an expert-networking firm he ran from his home in Portland, Oregon, Kinnucan pleaded guilty to one count of conspiracy and two counts of securities fraud for obtaining and passing illegal tips to hedge fund clients, including two in New York.

Kinnucan admitted getting inside information about SanDisk Corp., F5 Networks Inc. and OmniVision Technologies Inc., including quarterly revenue numbers, after befriending employees of technology companies from 2008 to 2010.

He paid his sources in a variety of ways, prosecutors said, including by buying them meals at high-end restaurants, and was sentenced to prison as part of a federal crackdown on insider trading at hedge funds, technology companies and expert-networking firms.

Kinnucan announced in October 2010 that he had refused a request by FBI agents to wear a wire and inform on his clients, a move that presaged more than a dozen insider-trading arrests in an initiative known as “Perfect Hedge” by Manhattan U.S. Attorney Preet Bharara’s office and the Federal Bureau of Investigation in New York.

From October 2010 until his arrest in February 2012, Kinnucan engaged in a “campaign” of threats and anti-Semitic rants against prosecutors, cooperating witnesses and others involved in the case, according to prosecutors. He has been in federal custody since his arrest.

The civil case is SEC v. Kinnucan, 12-cv-01230, Southern District of New York (Manhattan); the criminal case is U.S. v. Kinnucan, 12-cv-00163, U.S District Court, Southern District of New York (Manhattan).

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