Doug Whitman – manager of hedge fund Whitman Capital made nearly $1 million from 2006 to 2009 by receiving inside tips about companies earnings.
California hedge fund founder was convicted of insider trading Monday by jury that rejected his claims that he was careful never to trade based on secrets he received about public companies.
Doug Whitman, whose hedge fund oversaw roughly $100 million, was convicted of all charges against him. Only days earlier, the federal jury in New York heard him testify that he took pains to trade only on legal information gleaned from employees at public companies and from analysts.
Whitman (54) founder of hedge fund Whitman Capital, was the only defendant to testify among dozens charged in a wide-ranging crackdown since 2007 on insider trading by federal authorities. Nearly all those charged have pleaded guilty or been convicted at trial.
Sentencing was set for December 20.
“Douglas Whitman now joins the grim procession of convicted Wall Street professionals who decided that the rules don’t apply to them. The rules do apply Preet Bharara said in a statement issued after the verdict. “Mr. Whitman had a hedge fund with his name on the door, with rules against insider trading. He flouted those rules, tarnished his name and now is a convicted felon facing imprisonment.”
Prosecutors said Whitman made nearly $1 million from 2006 to 2009 by receiving inside tips about the earnings of public companies.
He testified that he was careful not to make trades based on inside information whenever he came across it, but his definition of what constituted secrets seemed elusive.
Whitman said he believed that it was fair for public company employees to give traders general information or “color” about how business was going, as long as they didn’t give up exact numbers about revenue, profit and guidance before they were released publicly.
Over three weeks, jurors heard testimony that Whitman’s hedge fund made trades from 2007 to 2009 based on inside information related to Google Inc., Marvell Technology Group and Polycom Inc.
Among witnesses for the government was Roomy Khan, who said Whitman was “almost hounding me” for inside information from a close contact at Polycom, a telecommunications company. Whitman testified that his firm realized $362,172 in profit on Polycom shares during the period the government alleged that Khan gave him secrets.
The government played audio tapes for jurors of phone conversations between Khan and Whitman. In one recorded call, Whitman refers to Khan as “Miss Google” after he made roughly half a million dollars on tips the government said he got from Khan.
Doug Whitman was convicted of two counts of securities fraud and two additional counts of conspiracy to commit securities fraud. The charges carry a potential penalty of as much as 50 years in prison, but his sentence probably will be much less.
So far, the longest prison sentence to result from the New York investigation was the 11-year term given to Raj Rajaratnam, a hedge fund founder who prosecutors say made as much as $75 million trading illegally.
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