Expert Networker John Kinnucan Arrested by FBI in Trading Probe
By Patricia Hurtado and Anthony Effinger – Feb 17, 2012 12:01 AM ET
John Kinnucan, the Broadband Research LLC founder who said he refused to secretly record a money manager in a U.S. probe of insider trading, was arrested in Portland, Oregon, the FBI said.
Federal Bureau of Investigation agents arrested Kinnucan at his home late yesterday afternoon, Elizabeth Steele, an FBI spokeswoman in Portland, said in an e-mail. Steele said Kinnucan was in the Multnomah County Jail awaiting his initial appearance today before a federal judge.
“There is no further information that I can give to you at this point,” she said.
Peter Donald, a spokesman in the FBI’s New York office, said he expected Kinnucan to be arraigned today in Portland and eventually be brought to New York to face prosecution. He said the charges are under seal and he couldn’t discuss the case further.
At least 10 agents wearing FBI jackets arrived at Kinnucan’s home at 4:19 p.m. yesterday, said a neighbor, who saw the arrest and didn’t want to be identified because she knows the family. Kinnucan, wearing a T-shirt and blue jeans and with his arms handcuffed behind his back, was led away from his house minutes later by the agents, the neighbor said.
Federal prosecutors in New York previously disclosed in court papers that they had a court-authorized wiretap on Kinnucan’s mobile phone.
Kinnucan, 54, whose public refusal of an FBI request to wear a wire presaged a dozen insider-trading arrests, said in a July 8 interview that he expected to be arrested.
“Am I a target? Yeah, absolutely,” Kinnucan said in the interview. “There’s a saying that the government indicts who they investigate, so I have always assumed that I was a target.”
Kinnucan, who ran the expert networking firm, denied he ever received illegal tips on companies, and insisted the kind of information he provided hedge fund clients was publicly available.
In October 2010, he sent an e-mail saying he had been approached by federal agents who asked him to record conversations with an unidentified money manager. The message was sent to about 50 recipients, including clients such as Wellington Management Co. in Boston, Janus Capital Group Inc. in Denver and SAC Capital Advisors LP in Stamford, Connecticut.
Kinnucan’s calls were recorded in talks with Donald Longueuil, a former SAC portfolio manager, and Level Global Investors LP co-founder Anthony Chiasson, said prosecutors in the office of Manhattan U.S. Attorney Preet Bharara.
Ellen Davis, a spokeswoman for Bharara’s office, declined to comment on Kinnucan’s arrest.
More than 60 people have been charged with insider trading in the five-year probe called “Perfect Hedge” by the FBI in New York and by Bharara’s office. Janice Fedarcyk, head of the FBI’s New York office, said more than 50 of those arrested have pleaded guilty or been convicted after trial. Those convicted in the probe include Galleon Group LLC co-founder Raj Rajaratnam, who is serving an 11-year prison term.
Nathaniel Burney, a New York lawyer who has represented Kinnucan, said in a phone interview this week that he is no longer his defense lawyer. Burney said this occurred sometime late last year and declined to comment further on the matter, citing attorney-client privilege.
The identity of Kinnucan’s current attorney couldn’t immediately be determined.
Longueuil was sentenced in July to 2 1/2 years in prison for his role in an insider-trading scheme. Chiasson pleaded not guilty Feb. 14 to conspiracy and securities-fraud charges in federal court in Manhattan.
Assistant U.S. Attorney Antonia Apps said at the Feb. 14 hearing that prosecutors had recordings of conversations between Chiasson and Kinnucan.
Chiasson was one of four men arrested last month and charged with participating in a “criminal club” that made almost $62 million using illegal tips to trade in Dell Inc. (DELL) stock. Prosecutors said the ring, which allegedly involved five hedge funds and investment firms, is the largest identified by the U.S. to date tied to a single stock.
Expert-networking firms connect investors with industry experts who provide insight into a specific market.
Walter Shimoon, a former Flextronics International Ltd. executive charged with insider trading who pleaded guilty in July, said in court that he gave Kinnucan confidential nonpublic information about his own company, as well as about OmniVision Technologies Inc., Apple Inc. and Cisco Systems Inc.
Kinnucan said in July that he didn’t know why the government would focus on him, saying his research was “entirely in line” with standard industry practices. “This was industry gossip,” he said of his work.
“The stuff we talked about you can find every day, publicly, on the Internet,” he said.
Kinnucan said he never covered Shimoon’s company, adding, “None of my clients cared one iota about Flextronics.”
“I have e-mails from my clients saying ‘This Apple stuff is worthless’ and clients saying ‘This OmniVision stuff is worthless’ and that ‘Walter Shimoon doesn’t know what he’s talking about, it’s a joke.’”
During his plea before U.S. District Judge Jed Rakoff, Shimoon said he provided “specific production schedules and forecasts for Flextronics customers and about its suppliers like OmniVision, which produced camera sensors.”
Shimoon said that, at the time, he was working as a paid consultant for Broadband Research, which Kinnucan opened in 1999, as well as for Mountain View, California-based Primary Global Research LLC, another expert-networking firm.
Shimoon said Primary Global paid him about $200 an hour and that he had earned a total of $18,000 from the company for passing secret tips to hedge fund managers. Shimoon said he got more than $27,000 from Kinnucan’s firm.
The crime was committed “in connection with Shimoon providing material, nonpublic information to John Kinnucan, Broadband Research, and, indirectly, to Broadband Research’s clients, including money managers,” the government said in court papers in Shimoon’s case.