NEW YORK Feb 19 California hedge fund manager Doug Whitman, the first defendant in the broad U.S. crackdown on insider trading to take the stand in his own defense, on Wednesday failed to persuade a federal appeals court to overturn his conviction.
The 2nd U.S. Circuit Court of Appeals rejected Whitman's arguments that the insider trading conviction was tainted because the trial judge instructed jurors improperly and refused to admit various testimony from experts and witnesses.
Whitman, 56, the founder of Whitman Capital LLC in Menlo Park, California, was sentenced in January 2013 to two years in prison on two counts each of securities fraud and conspiracy for his roles in two trading schemes from 2006 to 2009.
Prosecutors said one scheme led to more than $900,000 of illegal profit from trading the shares of Google Inc and video-conferencing company Polycom Inc, and the other involved "soft-dollar" payments made to win tips on and then trade in chipmaker Marvell Technology Group Ltd.
The government said Whitman tried to profit illegally with information from insiders like Roomy Khan, a former Intel Corp employee who passed tips on Google and Polycom, and Karl Motey, a consultant who passed tips about Marvell.
At Whitman's sentencing, U.S. District Judge Jed Rakoff in Manhattan said he believed Whitman had "repeatedly perjured himself" on the witness stand and had been "willfully, blatantly aware" that he was conducting insider trading. Whitman has been free on bail during his appeal.
In its ruling on Wednesday, the 2nd Circuit said Rakoff did not err in giving jurors a "conscious avoidance" instruction, letting them consider whether Whitman was aware of but ignored a high probability that wrongdoing was afoot.
Jurors, it said, could reasonably conclude that Whitman had been "deliberately closing his eyes" as to whether Khan, whom he called "Ms. Google," and Motey were passing inside information.
"Whitman responded to warning signs about the nature of Khan and Motey's tips not with skepticism but with advice on how better to play fast and loose," the court said.
Carter Phillips, a partner at Sidley Austin who represented Whitman in the appeal, was not immediately available to comment. A spokeswoman for U.S. Attorney Preet Bharara in Manhattan declined to comment.
The appeals court said Rakoff also acted reasonably in blocking a Wall Street analyst and a financial consultant familiar with general industry practices from opining about the specific facts of Whitman's case.
It also said Rakoff correctly excluded a deposition in which former Polycom executive Sunil Bhalla, who did not testify at trial by invoking his constitutional right against self-incrimination, denied passing inside tips to Whitman.
Khan and Motey pleaded guilty and cooperated with prosecutors in the insider trading probe, which has led to about 79 guilty pleas and convictions.
Among those convicted have been Galleon Group hedge fund founder Raj Rajaratnam, former McKinsey & Co global managing director Rajat Gupta, and former SAC Capital Advisors LP portfolio manager Mathew Martoma.
Khan was also a central figure in the case against Rajaratnam. The probe was unveiled in October 2009.
The case is U.S. v. Whitman, 2nd U.S. Circuit Court of Appeals, No. 13-491.