U.S. Department of Justice

United States Attorney
Southern District of New York

Monday, August 20, 2012

California Hedge Fund Manager Found Guilty for Insider Trading

Convicted on Four Counts for Trading on Marvell, Polycom and Google Inside Information, Earning His Firm More Than $900,000 in Illegal Profits

Doug Whitman, a portfolio manager at Whitman Capital LLC, was found guilty today by a jury in Manhattan federal court on all four counts of conspiracy and securities fraud crimes stemming from his involvement in two insider trading schemes that earned his firm more than $900,000 in illegal profits, announced Preet Bharara, the U.S. Attorney for the Southern District of New York.   As part of the schemes, Whitman executed trades based on material, non-public information, related to three publicly traded companies: Marvell Technology Group Ltd., Polycom Inc. and Google Inc.   He was convicted after a three-week trial before U.S. District Judge Jed S. Rakoff.

 

Whitman, 54, of Atherton, Calif., was convicted of two counts of conspiracy to commit securities fraud and two counts of securities fraud.   Each of the conspiracy counts carries a maximum penalty of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense.   Each of the securities fraud counts carries a maximum penalty of 20 years in prison and a maximum fine of $5 million.   Whitman is scheduled to be sentenced by Judge Rakoff on Dec. 20, 2012.

 

U.S. Attorney Bharara said:   “Douglas Whitman now joins the grim procession of convicted Wall Street professionals who decided that the rules don’t apply to them.  The rules do apply.  Over and over again, juries of good, common-sense citizens have said the rules do apply, and they have held defendants like Mr. Whitman accountable for breaking them.  Mr. Whitman had a hedge fund with his name on the door, with rules against insider trading.  He flouted those rules, tarnished his name and now is a convicted felon facing imprisonment.  I want to thank both the jury for their service and the fine career prosecutors from my office who so ably tried this case for their hard work and dedication.”

 

According to the indictment, evidence presented at Whitman’s trial, as well as testimony from other trials and court proceedings:

 

From 2007 through 2009, while running Whitman Capital, Whitman bought and sold Marvell stock and options based on inside information, including earnings, revenue and/or other material financial and business information.   The inside information was provided to Whitman by Karl Motey, an independent research consultant, who had obtained it from certain Marvell employees.   In exchange for the inside information, Whitman paid Motey through a soft dollar payment arrangement between Whitman Capital and Motey’s consulting firm.   Whitman also provided the Marvell inside information to Wesley Wang, in exchange for other inside information.  

 

In another scheme, from 2006 to 2007, Whitman obtained inside information, including earnings information and other material financial information, pertaining to Polycom and Google from Roomy Khan, who worked in the hedge fund industry.   Khan obtained the Polycom inside information from an employee at the company, and she obtained the Google inside information from an employee of a firm that provided investor relations services to Google.   Whitman used the Polycom and Google inside information to execute securities transactions that earned his firm more than $900,000 in illegal profits.   In exchange for the inside information, Whitman provided Khan with information about other publicly traded technology companies.

 

Whitman’s co-conspirators, Motey, Khan and Wang, previously pleaded guilty to insider trading charges and are awaiting sentencing.  

 

U.S. Attorney Bharara praised the investigative work of the Federal Bureau of Investigation and thanked the U.S. Securities and Exchange Commission.   He noted that the investigation is continuing.

 

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

 

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.   Assistant U.S. Attorneys Jillian Berman, Christopher LaVigne, and Micah Smith are in charge of the prosecution.

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