Another Insider Trading Conviction


Hedge fund manager Doug Whitman became the latest person convicted of insider trading despite a vigorous defense.  Whitman decided to testify in his own defense, the first in the current insider trading prosecutions to do so, and argued that all his trades were based on legitimate research, not inside information.  However, the jury took less than a day to return guilty verdicts on all charges.

In a novel defense, Whitman’s lawyers argued that obtaining non-public information is what “every diligent, competent fund manager and analyst should do, checking up on companies’ management to make sure they are being forthright with their investors.”  Whitman’s theory of the case was that he did not have the knowledge, awareness, or intent that is required to commit the crimes with which he has been charged. Instead, Whitman claimed that he traded in the securities of Marvell, Polycom, and Google in good faith, based upon his own research and analysis and not based upon anything he recognized, understood, or believed was material nonpublic information about those companies that had been obtained through providing personal benefits to corporate insiders.

Whitman said he didn’t believe Roomy Khan, a former technology company employee who pleaded guilty to providing inside information to Raj Rajaratnam, was sharing inside information when she said a senior Polycom executive agreed with Whitman’s expectations for the company’s quarter in January 2006. Nor did he believe Khan when she told him she had a secret source at Google’s outside investor relations firm in July 2007.

Whitman’s lawyers also attacked the credibility of the prosecution’s witnesses, all of whom had pleaded guilty and were testifying in hopes of reducing their sentences.

In the end, the jury convicted Whitman on two counts of conspiracy to commit securities fraud and two counts of securities fraud.  The convictions carry a possible sentence of as long as 20 years in prison.  Sentencing is scheduled for December.

Whitman’s conviction follows 66 insider trading guilty pleas and verdicts won by prosecutors in the office of U.S. Attorney Preet Bharara in Manhattan since August 2009.  For a complete list of individuals affiliated with research firms charged with insider trading, go to


About Author

Leave A Reply