NEW YORK (AP) — A San Francisco hedge fund founder, with his mother watching from a court bench, testified Monday that his trades were based on legitimate research rather than inside information.
Douglas Whitman, 54, denied charges that he used inside information to make nearly $1 million since 2006.
His testimony was unusual because several other defendants who went to trial in the past several years on insider trading charges in Manhattan chose not to testify. And the majority of the dozens of people charged in the last four years in several related insider trading investigations have pleaded guilty.
But the Whitman case stood apart from others even before the defendant took the stand. At his trial, the government for the first time found it relevant to call to the witness stand Roomy Khan. The California analyst-turned-day-trader told jurors last week how she made the pursuit of inside information a prized feature of her trading strategy since 1996 and how she shared her secrets with her financial friends.
Khan had testified that Whitman was among several close friends she routinely fed inside tips between 2004 and 2008, when he lived a 5-minute walk away from her home in Atherton, Calif.
She also was forced to reveal she had pleaded guilty in 2001 and again in 2009 to federal charges, including insider trading, wire fraud and obstruction of justice. She also admitted hiding from the FBI that she was trying to warn her friends that she was cooperating with the government and that she had forged a document in a civil case brought by a former maid.
Whitman acknowledged that he spoke to Khan about once a week after meeting her in 2002 through a co-worker at his firm, Whitman Capital, and was interested in what the one-time Intel Corp. employee had to say about the semiconductor industry.
"She's very smart and knew a lot," Whitman said.
But he said she did not give him inside information in January 2006 about Polycom Inc., a telecommunications company, despite her claims that she did.
Whitman also disputed Khan's characterization of him as a man who was "almost hounding me" for information about Polycom.
Questioned by defense lawyer David L. Anderson, Whitman said it was Khan who called him four times within a half-hour one day in December 2005, including once when he was walking to lunch with his mother, who watched from a front-row spectator bench Monday.
Whitman said Khan weeks later told him in a phone conversation not to commit money to Polycom until she checked with a friend who worked at the company to get an update.
"I didn't really care," he said. "We had already started our investment."
Whitman said his firm realized $362,172 in profits on Polycom shares that were sold after earnings were announced. He said that represented just a tiny fraction of the 14 percent annual profits the hedge fund averaged for customers who invested a total of about $100 million.