Atherton resident Doug Whitman, 54, of Whitman Capital was arrested by the FBI in connection with an insider trading ring linked to hedge fund advisory firm Galleon Management.
He has been charged with two counts of conspiracy to commit securities fraud and two counts of securities fraud. The conspiracy counts each carry a maximum penalty of five years in prison and a fine of $250,000. The securities fraud counts each carry a maximum sentence of 20 years in prison and a maximum fine of $5 million.
His attorney, David Anderson of Sidley Austin LLP, issued a statement asserting his client's innocence and cooperation with the investigation. "The charges are based on claims made by Roomy Khan and Karl Motey, who have pled guilty to insider trading and conspiracy, and who hope to reduce their prison sentences by accusing Mr. Whitman. Their claims are false and will be proved false," the statement concluded.
The Securities and Exchange Commission (SEC), which filed a civil lawsuit against the manager and his firm, alleged that Mr. Whitman illegally traded based on non-public information obtained from friend and neighbor Ms. Khan. In its complaint, the agency stated that Mr. Whitman got confidential information around six years ago about Polycom and Google earnings in 2005 and 2007, estimating that he then allegedly earned nearly $1 million by trading on the information.
"Whitman engaged in what even he termed 'slimeball' activity and together with Khan brought new illicit meaning to the maxim 'help thy neighbor,'" said George Canellos, director of the SEC's New York Regional Office in a written statement.
According to the SEC's complaint, filed in a Manhattan federal court, the information about Polycom and Google is the same inside information that the SEC previously alleged Ms. Khan provided to other hedge fund contacts.
The complaint alleges that Whitman Capital accumulated 132,263 shares of Polycom stock and then liquidated it after getting the tip from Ms. Khan for a profit of more than $360,000. On at least one later occasion, in September 2008, Mr. Whitman allegedly asked her for further information and suggested using Skype to avoid detection, the SEC said.
The complaint further alleges Mr. Whitman illicitly earned $620,000 in 2007 from similar information about Google's quarterly financial results. Afterward, according to the SEC, Mr. Whitman sent Ms. Khan flowers as a thank you.
The SEC has charged 30 defendants to date in its Galleon-related investigation. The insider trading occurred at more than 15 companies for profits of more than $91 million, according to the agency.