More Caught Up In Insider Trading Investigation

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New York, NY – Last Thursday, independent technology analyst, John Kinnucan of Oregon-based Broadband Research, was arrested by federal authorities in the ongoing investigation into insider trading.  In addition, Don Barnetson, a former executive of Sandisk Corp., plead guilty on Friday of passing material nonpublic information to Kinnucan.  Click here for a who’s who of insider trading cases associated with research firms.

Charges against Kinnucan

Kinnucan was arrested at his Portland home on February 16th, and has been charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud.  According to the criminal complaint, unsealed last week in Manhattan, Kinnucan is accused of receiving inside information from officials at Flextronics International Ltd., F5 Networks Inc., and SanDisk Corporation, resulting in illicit gains of nearly $110 million.

Kinnucan became well-known when in October 2010 he sent an email to his buy-side clients telling them that FBI agents had visited him and tried to persuade him to cooperate with the insider trading investigation.  Although Kinnucan refused, he became extremely vocal about the federal investigation.

The criminal complaint alleges that Kinnucan paid the sources of this inside information by providing them meals at high-end restaurants, shipping them expensive food, and providing cash payments.  Kinnucan is accused of providing this information to buy-side analysts and portfolio managers who paid him hundreds of thousands of dollars for the Broadband Research service.

According to the complaint, Kinnucan lied to his clients about the sources of the information he provided them by claiming that none of them were employed at publicly traded companies and that he didn’t pay them for information.  However, federal investigators learned differently from wiretaps of conversations between Kinnucan and insiders at public companies, as well as clients of Broadband Research.

FBI assistant director-in-charge, Janice Fedarcyk, explained the case against Kinnucan, “The information he obtained and passed along to clients was not the result of research.  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 government also accused Kinnucan of making threatening statements to a cooperating witness and attempting to contact a second.  This is not surprising given the fact that in the past few months, Kinnucan has reportedly made a number of threats and tried to intimidate the government personnel responsible for his investigation.

Former Sandisk Exec Pleads Guilty

In a related case, Don Barnetson, a former senior director of outbound marketing at SanDisk Corporation, plead guilty on Friday to one count of conspiracy to commit securities and wire fraud.  Barnetson admitted that he had conspired with a consultant to provide confidential information with regard to SanDisk.

Federal Prosecutors allege that in July 2010, Barnetson divulged SanDisk’s upcoming revenue figures to Broadband Research’s Kinnucan.  Again in September 2010, Barnetson told Kinnucan about confidential negotiations about a legal dispute between SanDisk and Apple, Inc.

Kinnucan purportedly paid Barnetson $25,000 as an investment in a business he was starting.  In addition, Kinnucan paid for meals at expensive restaurants, and provided food deliveries to Barnetson.  Kinnucan also provided Barnetson with inside information about other companies.

Hedge Fund Admits Receiving Insider Information from Broadband

In another related development, Dallas-based hedge fund, Carlson Capital LP, acknowledged last week that one of its former portfolio managers had received inside information from Kinnucan’s Broadband Research.

In a public statement, Carlson said “The individual referenced was at the firm for nine months and left in March 2011.  Carlson has cooperated fully with the government and has been informed that it is not a target of the investigation. The former employee was the only member of the firm to use this consultant.”

Sources familiar with the investigation said that the former Carlson manager is Dan Grossman. Before joining Carlson, Grossman worked at Level Global, a New York-based hedge fund.  Level Global’s co-founder, Anthony Chiasson, was arrested and charged with insider trading last month.  The government has not named either Carlson or Grossman in its complaint.

 

 

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