MANHATTAN U.S. ATTORNEY AND FBI ASSISTANT DIRECTOR-IN-CHARGE ANNOUNCE INSIDER TRADING CHARGES AGAINST CALIFORNIA HEDGE FUND PORTFOLIO MANAGER
FOR IMMEDIATE RELEASE
Friday February 10, 2012
Defendant Allegedly Used Polycom and Google Inside Information to Net More Than $900,000 in Illegal Profits in One Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, and Janice K. Fedarcyk, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced conspiracy and securities fraud charges against DOUG WHITMAN, the head portfolio manager at Whitman Capital, LLC, related to his alleged involvement in two insider trading schemes that earned his firm more than $900,000 in illegal profits. As part of the schemes, WHITMAN allegedly executed trades based on material, non-public (“Inside Information”) related to three publicly traded companies: Marvell Technology Group, Ltd. (“Marvell”), Polycom, Inc. (“Polycom”), and Google, Inc. (“Google”). WHITMAN surrendered to the FBI this morning and will be presented in Magistrate Court later this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “Inside tips, illegal shortcuts, and corrupt collaborations have no place in a trading strategy, and there is a high price to pay for those who think and act otherwise. With today’s charges, Doug Whitman now joins the growing list of privileged professionals who mistakenly thought the rules did not apply to them.”
FBI Assistant Director-in-Charge Janice K. Fedarcyk said: “Trading on inside information, whether it comes directly from industry insiders or is channeled through conduits, is illegal. Whitman recognized the value of the information he got, and paid cash for it in one case, and bartered his own inside information in the other. As today’s charges show, our efforts to police the securities marketplace are unwavering.”
The following allegations are based on the Indictment unsealed today in Manhattan federal court, as well as trial testimony from other court proceedings:
From about 2007 through about 2009, WHITMAN bought and sold Marvell stock and options at Whitman Capital based on Inside Information, including earnings, revenue, and/or other material financial and business information. The Inside Information was provided to WHITMAN by Karl Motey, an independent research consultant, who had obtained it from several Marvell employees. In exchange for the Inside Information, WHITMAN paid Motey through a soft dollar payment arrangement between Whitman Capital and Motey’s consulting firm.
In another scheme, from about 2006 to about 2007, WHITMAN obtained Inside Information, including earnings information and/or material financial and business information, pertaining to Polycom and Google from Roomy Khan, who worked in the hedge fund industry. Khan obtained the Polycom Inside Information from an employee at the company, and she obtained the Google Inside Information from an employee of a firm that provided investor relations services to Google. WHITMAN used the Polycom and Google Inside Information to execute securities transactions that earned his firm more than $900,000 in illegal profits. In exchange for the Inside Information, WHITMAN provided Khan with information about other publicly traded technology companies.
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WHITMAN, 54, of Atherton, California, has been charged with two counts of conspiracy to commit securities fraud and two counts of securities fraud. The conspiracy counts each carry a maximum penalty of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. The securities fraud counts each carry a maximum penalty of 20 years in prison and a maximum fine of $5 million.
Mr. Bharara praised the investigative work of the FBI and thanked the U.S. Securities and Exchange Commission. He noted that the investigation is continuing.
Karl Motey and Roomy Khan both previously pled guilty to insider trading charges and are awaiting sentencing.
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. Attorney David Leibowitz and Special Assistant U.S. Attorney Andrew Z. Michaelson and are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and WHITMAN is presumed innocent unless and until proven guilty.