Kinnucan Pleads Guilty To Tipping Hedge Funds

Jul 26 2012 | 1:25pm ET

In a somber voice, the formerly defiant face of opposition to the federal government's insider-trading crackdown ended his resistance.

John Kinnucan, the founder of Broadband Research, pleaded guilty yesterday to collecting confidential information about technology companies and selling it to hedge funds and other clients. He faces up to 57 months in prison when he is sentenced on Jan. 15 on the conspiracy and securities fraud counts.

Kinnucan, who could have faced up to 45 years in prison if he went to trial and was convicted, will spend more time behind bars because of the two-level enhancement resulting from his attempt to obstruct the investigation into his conduct. Prosecutors said he left at least 24 threatening voicemails with prosecutors, Federal Bureau of Investigation agents and cooperating witnesses in the case; in one, he told a prosecutors that it was "too bad Hitler is not around. You should be in the gas chamber."

"John Kinnucan engaged in an orchestrated campaign to obstruct a federal investigation into his illegal conduct," U.S. Attorney Preet Bharara said. "Briefly a cause celébre as some called him, Mr. Kinnucan is now a felon facing sentencing for his insider-trading crimes."

"The truth came out of his own mouth, and he admitted that he is a securities fraudster, and his attempt to obstruct justice in a repugnant and disturbing manner were ultimately fruitless."

Kinnucan, who was arrested in February, appeared in court in prison garb, wearing a thick beard. He told the court, " I knew that the sources of this information had an obligation to keep the information confidential, but the sources gave me the information in exchange for personal benefits," including, according to prosecutors, fancy dinners and confidential information from other sources.

"From approximately 2008 to 2010, I worked with others to obtain material non-public information from employees of public companies," he said. "I then passed the information to clients."

Those clients included two hedge fund portfolio managers in New York, who were not identified. Kinnucan has been tied to former SAC Capital Advisors trader Donald Longueuil; calls between the two men were tapped by the FBI. None of the charges against Kinnucan related to SAC, which may have been the target of the FBI agents who sought his cooperation two years ago.

Instead, Kinnucan sent an e-mail to his clients, including employees of Coatue Management, Citadel Investment Group, Maverick Capital and SAC, regaling them with the tale of the "two fresh-faced eager beavers from the FBI" who were "thoroughly convinced that my clients have been trading on copious inside information. We obviously beg to differ, so have therefore declined the young gentlemen's gracious offer to wear a wire and therefore ensnare you in their devious web." After the letter became public, Kinnucan became something of a fixture on television.

Little of that defiance was on display yesterday, although Kinnucan did manage some levity when asked by U.S. District Judge Deborah Batts if he was feeling OK. He laughed and told her that was as good as he could be, "under the circumstances."

And his attitude and public persona undoubtedly put a target on his back. A day after The Wall Street Journal wrote about Kinnucan on its front page, then-prosecutor Jonathan Streeter asked his colleagues, "Are we going to get this guy?"

They did.


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