U.S. hedge fund founder is denied early release in insider case

NEW YORK (Reuters) - A federal judge on Wednesday rejected hedge fund manager Doug Whitman’s request to end his two-year sentence for insider trading early while he pursues his latest appeal of his 2012 conviction.

California hedge fund manager Doug Whitman exits the Manhattan Federal Courthouse in New York, following his sentencing, January 24, 2013. REUTERS/Brendan McDermid

U.S. District Judge Jed Rakoff said it would be unfair to release the Whitman Capital LLC founder from the Sacramento, California, halfway house where he was moved this month just because he is only five months away from possible freedom.

Whitman, 58, was convicted of trading and conspiring to trade on confidential tips from two people who were tipped by insiders at publicly traded technology companies.

An earlier appeal failed in February 2014.

Whitman said he now has “substantial” legal claims after the federal appeals court in Manhattan ruled in December in a different case that insider trading required knowledge of a meaningful “personal benefit” being passed in exchange for tips.

Whitman also said “extraordinary” circumstances, including the short time left in his sentence and the “great difficulty” affecting some family members, justified his being released now.

Rakoff, however, wrote that while “not unsympathetic to Whitman’s request, it is quite clear that he does not meet the requirements for such release, so that granting him such relief would inequitably prefer him to others similarly situated.”

The judge also said it did not matter that Whitman’s incarceration might end before his latest appeal was resolved, or else “every prisoner nearing the end of a term could bring a successful bail motion” in a similar case.

Whitman is eligible for release on May 29, 2016.

His lawyer, Dennis Riordan, said he will likely ask the appeals court to free Whitman during the latest appeal, “but the principal objective remains the overturning of Mr. Whitman’s conviction.”

Whitman has argued that the new, narrower definition of insider trading tainted the outcome of his 2012 trial and deprived him of his right to counsel during the earlier appeal because another lawyer had failed to raise the issue.

Whitman Capital was based in Menlo Park, California.

The case is U.S. v. Whitman, U.S. District Court, Southern District of New York, No. 12-cr-00125.

Reporting by Jonathan Stempel in New York; Editing by Dan Grebler