Hedge Fund Manager Busted for Insider Trading of Tech Stocks

Doug Whitman, a hedge fund manager with Whitman Capital, has been charged with insider trading of tech stocks by federal prosecutors. The Securities and Exchange Commission is also pursuing Whitman in a parallel civil case.

Whitman surrendered to the Federal Bureau of Investigation on Friday, pled not guilty at a hearing in federal court, and was released on a US$1.5 million bond.

Whitman traded on the basis of lawful research and analysis and is innocent of the charges, said his attorney, David L. Anderson of Sidley Austin, in a statement.

The charges are based on claims made by Roomy Khan and Karl Motey, who have pled guilty to insider trading and conspiracy, he noted.

Khan, a former Intel executive, and Motey, a former technology industry analyst, are hoping that implicating Whitman will lead to a reduction in their prison sentences, the attorney maintained.

A spokesperson for Anderson declined to provide further details.

$900,000 in Trades

Whitman is accused of making more than $900,000 on trades in Google, Marvell Technology and Polycom. In addition, he allegedly shared information about other publicly traded companies and paid money for tips.

The charges against Whitman arose out of a larger investigation against the Galleon Group. Its founder, Raj Rajaratnam, was convicted of insider-trading charges and is currently serving an 11-year prison sentence.

Khan, a friend and neighbor of Whitman, was a tipster in that case. Whitman allegedly pressured her for insider information. She claims she resisted, but Whitman threatened to cut off their relationship if she didn’t cooperate.

A Crackdown That Goes Unnoticed

For the majority of people, these events will pass by unnoticed. Insider trading is not a widely understood crime and even if the companies affected — such as Google — are brand names in which many people invest, they still tend to shrug off the news, David Johnson, principal of Strategic Vision, told the E-Commerce Times.

The government began its crackdown on insider trading in late 2009. Since then it has secured about 56 guilty pleas from the 63 people who have been charged.

“Prosecutors understand the harm insider trading can do to the economy or the individual shareholder, but the average person does not,” said Johnson. General outrage — like that aimed at the housing and banking industry after the crash of 2008 — is nonexistent.

In fact, prosecutors in some cases face an uphill battle to win public sympathy, Johnson added. “When people like Martha Stewart are charged, people don’t necessarily pay attention to the prosecutors’ side but just listen to whatever spin their attorneys offer.”