Doug Whitman, founder of Whitman Capital LLC — a hedge fund — has been sentenced to two years in prison, according to Bloomberg, for trading on illicit tips about Polycom, Google, and Marvell Technology Group. He said he received the information from Roomy Khan, former Intel executive. The transactions conducted produced $935,000 for Whitman on the trades based on her tips, and those of a Whitman-hired consultant named Karl Motey,. 

The Whitman Capital LLC hedge fun appealed to the U.S. Court of Appeals in New York to seek a ruling that that judge had improperly instructed the jury on how to consider the issue of willful blindness at his insider trading trial, but the court rejected the argument. 

Benjamin Fischer, a partner at Morvillo Abramowitz Grand Iason & Anello PC, told Bloomberg that the ruling supports, “the government’s most powerful prosecution tool…The endorsement of the conscious avoidance theory will certainly embolden the government to rely upon it in securities fraud cases going forward.”

There has been much speculation over the “mole” that Khan had access to — which the court claims is part of the conviction in that Whitman knew that Khan “courted trouble.” The court’s statement detailed how the decision came about, and spotlighted the loopholes in Whitman’s claims: “Here Whitman’s own words were far more damning and provided ample factual basis for the conclusion that he could avoid positive knowledge that Khan and Motey used illegal channels to get confidential information only by deliberately closing his eyes to facts well known to him.” 

Khan also twice pleaded guilty to passing inside information to Galleon Group LLC co-founder Raj Rajaratnam, who is now serving an 11-year prison term.

There is speculation that the U.S. Securities and Exchange Commission’s winning ruling on February 18 may allow the Commission to collect illegal proceeds from money managers who engage in insider trading — despite their firms receiving all the profit. Such a decision will have an effect on the future of insider trading decision made in the U.S. courts.


Further reading:

2nd Circuit gives SEC key ruling in insider trading cases

Ex-SAC fund manager found guilty of insider trading

Billionaire Mark Cuban beats insider-trading allegations