U.S. Department of Justice

United States Attorney
Southern District of New York

Tuesday, January 15, 2013

Oregon-based Research Consultant John Kinnucan Sentenced in Manhattan Federal Court to 51 Months in Prison for Insider Trading Scheme

NEW YORK – John Kinnucan, the president of Broadband Research LLC (BBR), an investment research firm located in Portland, Ore., was sentenced today to was sentenced today to 51 months in prison for his participation in an insider trading scheme, announced U.S. Attorney for the Southern District of New York Preet Bharara. Kinnucan obtained material, non-public information about publicly traded companies and sold that information to his clients, including hedge funds and money managers.  Kinnucan pleaded guilty in July 2012 to one count of conspiracy to commit securities fraud and two counts of securities fraud before U.S. District Judge Deborah A. Batts, who also imposed today’s sentence. 

U.S. Attorney Preet Bharara said:  “Today’s sentence of John Kinnucan is a fitting conclusion to a criminal odyssey that began with the buying and selling of inside information and evolved into a vile and very public campaign to threaten public servants and obstruct the federal investigation into Kinnucan’s conduct.  Mr. Kinnucan will now pay for both crimes with his liberty.”

According to the indictment, other court documents filed in the case, as well as statements made during the guilty plea and sentencing proceedings: 
 
From 2008 through 2010, Kinnucan obtained inside information about publicly traded companies, including quarterly revenue numbers, and sold that information to BBR clients.  The inside information came from co-conspirators who were employed at publicly traded companies, such as F5 Networks, Inc., Sandisk Corporation and Flextronics International Ltd.

In order to develop and maintain his network of public company sources, Kinnucan befriended public company employees and offered to provide some of them with consulting fees and other non-monetary consideration.  Specifically, Kinnucan paid one of his sources approximately $27,500 for inside information, and invested $25,000 in the business of another source. 

After he obtained inside information from public company sources, Kinnucan provided it to BBR clients with the understanding that they would use the information to execute securities transactions.  For example, in June 2010 and early July 2010, Kinnucan repeatedly sought information about F5’s quarterly financial results for the quarter ending on June 30, 2010 from an F5 employee.  In a telephone call on the morning of July 2, 2010, Kinnucan told the F5 employee that the guidance F5 previously provided to the investment community for the quarter that ended June 30, 2012 was $220 million.  The F5 employee then informed Kinnucan that the unadjusted revenue number was actually “$232 million,” confirming that F5 would beat Wall Street’s consensus estimates.  Within minutes of the July 2, 2010 conversation with the F5 employee, Kinnucan called numerous BBR Clients to provide them with the information.  After receiving the F5 inside information from Kinnucan, at least two BBR Clients executed securities transactions in F5 based, in whole or in part, on Kinnucan’s inside information, earning profits and avoiding losses of more than $1.5 million. 

In order to attract and retain BBR Clients, and in an effort to hide the true identity of his public company sources, Kinnucan lied to existing and prospective BBR Clients about the sources of his inside information, including by falsely stating that none of his sources was employed at public companies, and that he did not pay his sources. 

In an effort to obstruct the ongoing federal criminal investigation, from December 2011 through February 2012, Kinnucan made nearly 25 threatening telephone calls to prosecutors and agents responsible for the investigation of his unlawful activities.  In these telephone calls, Kinnucan made repeated references to genocide, sexual and other forms of violence, and threatened physical harm to one of the prosecutors handling this matter.  He also made multiple telephone calls to one cooperating witness and attempted to contact another in an effort to intimidate and harass them. 

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In addition to his prison term, Kinnucan, 55, of Portland, Ore., was sentenced to 3 years of supervised release and ordered to pay a $300 special assessment fee.  As part of his plea agreement, Kinnuncan will forfeit $164,000 to the United States. 

During the sentencing proceeding, Judge Batts said, “[Kinnucan] lashed out in anger and made a spectacle of himself [by leaving] obscene, hateful, despicable and repetitive” voicemails for prosecutors, and that “…threatening personally government authorities who are doing their jobs by investigating insider trading cannot be tolerated.”
 
U.S. Attorney Bharara praised the investigative work of FBI.  He thanked the U.S. Securities and Exchange Commission for its assistance in this matter. 
 
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

 This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Katherine R. Goldstein, David B. Massey and Christopher L. LaVigne are in charge of the prosecution.

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