California Hedge Fund Manager Doug Whitman Sentenced to 24 Months in Prison in Manhattan Federal Court for Insider Trading
|U.S. Attorney’s Office January 24, 2013|
Preet Bharara, the United States Attorney for the Southern District of New York, announced that Doug Whitman, a portfolio manager at Whitman Capital LLC, was sentenced today in Manhattan federal court to 24 months in prison for his involvement in two insider trading schemes that earned his firm more than $900,000 in illegal profits. As part of the schemes, Whitman executed trades based on material, non-public information (inside information), related to three publicly traded companies: Marvell Technology Group Ltd. (“Marvell”); Polycom Inc. (“Polycom”); and Google Inc. (“Google”). Whitman was convicted in August 2012 on two counts of conspiracy to commit securities fraud and two counts of securities fraud. He was sentenced by U.S. District Judge Jed S. Rakoff.
Manhattan U.S. Attorney Preet Bharara said, “With his sentence today, Doug Whitman joins scores of other privileged professionals who traded on inside information to gain an illegal edge and now live behind bars. His punishment shows yet again that supposedly elite financial players must operate by the same rules that apply to everyone else.”
According to the indictment, evidence presented at Whitman’s trial, and testimony from other trials and court proceedings:
From 2007 through 2009, while running Whitman Capital, Whitman bought and sold Marvell stock and options 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 certain 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. Whitman also provided the Marvell inside information to Wesley Wang in exchange for other inside information.
In another scheme, from 2006 to 2007, Whitman obtained inside information, including earnings information and other material financial 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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In addition to his prison term, Whitman, 55, of Atherton, California, was sentenced to one year of supervised release. He was also ordered to pay a $250,000 fine, a special assessment of $400, and to forfeit $935,306.
In issuing Whitman’s sentence, Judge Rakoff said, “Mr. Whitman was someone who had no compunctions about going across the legal lines that he was very well aware of, and excusing them, and even carrying those excuses into the courtroom when it served his interest.”
Whitman’s co-conspirators, Karl Motey, Roomy Khan, and Wesley Wang, previously pled guilty to insider trading charges. Wang was sentenced in Manhattan federal court to two years’ probation on January 9, 2013, by Judge Rakoff. Khan and Motey are scheduled to be sentenced by Judge Rakoff on January 31, 2013 and February 4, 2013, respectively.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation (FBI) and thanked the U.S. Securities and Exchange Commission.
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 Jillian Berman, Christopher LaVigne, and Micah Smith are in charge of the prosecution.