Whitman Says 'Color' Isn't Illegal

Aug 16 2012 | 4:03am ET

Facing a heated cross-examination by prosecutors who say he's an insider-trader, hedge fund manager Doug Whitman sought to explain his understanding of what is and isn't material, non-public information.

Assistant U.S. Attorney Christopher LaVigne asked the Whitman Capital founder what he meant by the word "mole" when referring to sources of corporate information. Government witnesses testified that those moles provided confidential information; Whitman said that was never his intent.

Instead, a "mole" is "someone who's knowledgeable on the subject or knowledgeable on the company." The information he received from those moles was simply "color," as opposed to hard facts.

"To know the number, if you get it, you know, the exact number, is not O.K.," Whitman said. But "guidance," "thinking" and "color" from insiders is not "material non-public information, typically," he explained.

LaVigne also hammered Whitman over his continuing relationship with Roomy Khan, a former Intel Corp. and Galleon Group employee who testified against Whitman, after he began to suspect she was trading in corporate secrets.

"You kept speaking to her?" LaVigne asked. "Yes," Whitman responded.

The prosecutor continued in that vein, demanding of Whitman, "You didn't hang up, did you?" and "You didn't say, 'I don't want to talk about this,' did you?"

Even after Khan told Whitman that a source at Google Inc. wanted to be paid for his tips, "you didn't cut off contact, did you?" LaVigne asked. "No, sir," Whitman said. In fact, Whitman testified earlier this week that he told her not to make the payments.

LaVigne also referred to a potentially damaging phone call between Khan and Whitman. Whitman, who denied "hounding" Khan for information about Polycon Inc., is heard urging Khan to call her contact at the company. He even suggested she use a Skype phone number to avoid getting caught.

"What value do you have if you're not a slimeball?" Whitman asked of the reluctant Khan, a former neighbor of his in Atherton, Calif.

Whitman is the first insider-trading defendant in the recent crackdown to take the stand. Prosecutors say his hedge fund earned nearly $1 million trading on illegal tips; he faces decades in prison if convicted.


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