As the fallout from the government’s huge insider-trading investigation continues to spread, an analyst at the center of it is trying to collect a bill owed him by a former client, hedge-fund giant Citadel–which may also be under investigation.
The analyst, John Kinnucan, has been trying to collect $50,000 from Citadel for months. Kinnucan sent an email directly to Citadel boss Ken Griffin trying to “shame” him into paying the bill.
It’s interesting to me that this stuff has been going on for years now and you can see it everyday,” Kinnucan said.
(Kinnucan later told us that what he meant in this email was not that the FBI had asked him to tape Citadel or Ken Griffin specifically, but that he had been asked to tape all of his clients, which included Citadel.)
Citadel, you may recall, was one of the first hedge funds to receive a subpoena in the big insider trading investigation. This is perhaps because Citadel was a client of Kinnucan’s expert network Broadband Research.
The identities of the specific individuals and firms that the FBI asked Kinnucan to record has been the subject of debate. The Wall Street Journal wrote months ago that Kinnucan was asked to record SAC Capital’s Michael Steinberg. But Kinnucan told us that Steinberg was not whom the FBI asked him to record.
The email Kinnucan sent Griffin confirms that one of Kinnucan’s clients was Citadel.
In addition to Kinnucan, three hedge funds—Diamond Capital Management, Level Global Investors and Loch Capital Management—were raided by the FBI in connection with its massive insider trading investigation…
U.S. prosecutors urged a judge to detain John Kinnucan, who is charged with taking part in an insider-trading scheme, citing a “pattern of threats and intimidation” against witnesses and U.S. authorities.
Prosecutors in court papers quoted from profanity-filled voice-mail messages left over two months with assistant U.S. attorneys, FBI agents and a witness who is cooperating with the government’s investigation. The voice mails contain numerous ethnic and racial slurs and references to the Holocaust.
“Kinnucan has engaged in volatile and extreme conduct, using references to genocide, violence and physical harm directed to the targets of his ominous tirades,” Manhattan prosecutors said in papers filed in federal court in Portland, Oregon, where Kinnucan appeared this afternoon and was ordered held until at least Feb. 22, when his bail hearing resumes.
Kinnucan, 54, the founder of Broadband Research LLC, was arrested at his Portland home yesterday and charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud and two counts of securities fraud in a complaint unsealed in New York.
On Dec. 6, prosecutors said, Kinnucan left a voice mail for an unnamed prosecutor: “Remember me? The guy who you tried to destroy, you scummy piece of s–t.” Kinnucan added, according to prosecutors, “Ah, too bad Hitler’s not around. He’d know what to do with scum like you. The calls “are the actions of a volatile and hostile individual” prosecutors argued.
“How the f–k can you live?” Kinnucan said to a cooperating witness in a voice mail on Feb. 11, according to the government. “Do you have a family, do you have children, do you have a wife? How can you even walk down the street, why don’t you just f–king kill yourself?”
That same day, prosecutors said, Kinnucan tried to contact another cooperating witness, sending an e-mail to the witness’s wife that asked her to have the witness call Kinnucan.
The case is U.S. v. Kinnucan, 12-mag-424, U.S. District Court, Southern District of New York (Manhattan).
John Kinnucan, an independent analyst, said the FBI approached him and said, “there was a very large insider trading ring investigation that they were conducting and one of my clients was a focus of the probe and they wanted my help in basically incriminating this individual.”
The FBI told Kinnucan not to disclose the name of the individual or he would be guilty of obstruction of justice, and went on to say that they needed to hear from him within 48 hours or there would be trouble, he told CNBC’s “The Strategy Session” on Tuesday.
He did not get back to them, but added that “my business has been destroyed” because of the investigation.
Kinnucan sent out an email to his clients disclosing the FBI visit:
“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information. (They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.”
“It reminds me a little of Arthur Anderson. If a company’s been indicted they’re out of business,” Kinnucan said, adding, “I haven’t been indicted but it’s a distinction without a difference in this case.”
Kinnucan’s business is generally known in the business as channel checks where he has a vast network of people (mostly at private resellers, value-added resellers) who keep him abreast of production level changes or design wins.
One implication of these FBI probes, according to Kinnucan, could be to prohibit channel checks.
“It’s impossible to be an analyst on Wall Street unless you have an expert network. I know that my contacts at these private companies for instance are having lunch on a regular basis with analysts from Jeffries [JEF 15.63 -0.13 (-0.82%) ], Morgan Stanley [MS 19.16 -0.03 (-0.16%) ] and Goldman Sachs [GS 115.91 1.17 (+1.02%) ],” he said.