UPDATE: Expert Networker Who Refused To Wear Wire Charged

Feb 17 2012 | 12:49pm ET

John Kinnucan, the expert-network founder who a year-and-a-half ago refused to cooperate with the Justice Department's ongoing insider-trading investigation, has been arrested and charged in the case.

Federal prosecutors in New York slapped the Broadband Research founder with four counts of conspiracy and securities fraud. The charges were unsealed today; Kinnucan, arrested yesterday at his Portland, Ore., home, was expected to make his first court appearance later today.

According to prosecutors, Kinnucan sought and received confidential information about a handful of technology companies. On one occasion, he allegedly learned about F5 Network's quarterly earnings in June 2010 from a source, and within minutes was on the phone with Broadband clients to pass along the tip. The information helped those clients earn profits or avoid losses totaling more than $1.5 million.

The complaint alleges that Kinnucan paid one source—Flextronics International's Walter Shimoon, who has pleaded guilty in the case—$27,500, and invested $25,000 in another source's business. Prosecutors have said they have recorded phone calls between Kinnucan and two other men charged in the case, ex-SAC Capital Advisors trader Donald Longueuil and Level Global Investors co-founder Anthony Chiasson. Longueuil has pleaded guilty in the case and Chiasson was arrested last month, pleading not guilty this week.

Kinnucan, who spent last night in a Portland jail, has denied any wrongdoing and told Bloomberg News that he would represent himself.

Kinnucan offered "financial incentives, fancy meals and other inducements to curry favor with public company insiders so they'd serve up their employers' secrets," Manhattan U.S. Attorney Preet Bharara said. "As the complaint alleges, the information he obtained and passed along to clients was not the result of research," Janice Fedarcyk, head of the Federal Bureau of Investigation's New York office, said. "It was inside information Kinnucan bought from company insiders. That kind of information beats research every time. The only problem is, it isn't legal."

The Securities and Exchange Commission filed its own case against Kinnucan today in Manhattan federal court.

Kinnucan gained some measure of fame in October 2010 when he e-mailed about 50 clients to inform them that the FBI had approached him about cooperating and that he had refused. Among the recipients were employees of hedge funds Coatue Management, Citadel Investment Group, Maverick Capital and SAC.

Both Kinnucan and SAC have been subpoenaed about their relationship with one another. In addition, Kinnucan said that the FBI sought his help in obtaining evidence against Regnan Rajaratnam, the brother of Galleon Group founder and convicted insider-trader Raj Rajaratnam. Kinnucan has said that neither Galleon nor Regnan Rajaratnam's hedge fund, Sedna Capital Management, were clients.


In Depth

Fundraising for Mid-Sized PE Funds: Should You Use a Registered B/D?

Dec 6 2016 | 7:18pm ET

When does a fund sponsor need to use a registered broker/dealer when raising capital...

Lifestyle

Trump Attends 'Villains and Heroes' Costume Party Dressed As...Himself

Dec 5 2016 | 11:16pm ET

U.S. President-elect Donald Trump attended a "Villains and Heroes" costume party...

Guest Contributor

Nowhere to Hide: Why the Future of Asset Management Depends on Innovation

Nov 15 2016 | 6:55pm ET

Information technology has reshaped the asset management industry’s periphery,...

 

From the current issue of

Since the inception of Modern Trader, a core editorial theme has centered on the wisdom and power of crowds. Editorial emphasis has focused on companies and projects engaged in the collection and analysis of information. 

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR