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By Jonathan Stempel
NEW YORK |
Fri Feb 17, 2012 11:43am EST
NEW YORK (Reuters) - A research analyst who made waves by refusing to cooperate in the government's broad insider-trading probe was charged with illegally passing tips he gleaned from technology company insiders to hedge funds.
As part of the case against Oregon-based analyst John Kinnucan, former SanDisk Corp executive Don Barnetson was expected to plead guilty later Friday to supplying Kinnucan with inside tips, according to sources close to the investigation. They declined to be identified because those charges were not yet public.
The arrest of Kinnucan came more than a year after he first surfaced in a wide-ranging government probe into trafficking of corporate information among industry analysts, corporate executives and traders at hedge funds.
Kinnucan said previously that FBI agents had approached him in 2010 to wear a wire in order to catch one of his contacts, but that he rebuffed them. He then went on to send an email to his past and current clients alerting them to the FBI's efforts.
Kinnucan, a principal at Broadband Research in Portland, Oregon, was charged with two counts of securities fraud and two counts of conspiracy, U.S. prosecutors said. He was also charged with insider trading in a civil case filed by the U.S. Securities and Exchange Commission.
Barnetson, was expected to plead guilty later Friday to a securities fraud-related charge for passing tips to Kinnucan, sources said. He could not immediately be reached.
Federal prosecutors alleged that Kinnucan, as part of his consulting arrangement with at least two unidentified hedge funds, passed on corporate secrets. The government said one of the hedge funds is based in Dallas, Texas.
Nathan Burney, a lawyer who has represented Kinnucan, did not immediately respond to a request for comment.
Investigators said the 54-year-old analyst obtained material nonpublic information from employees at a variety of public technology companies, such as SanDisk, F5 Networks Inc and Flextronics International Ltd, and gave the information to clients.
"John Kinnucan used financial incentives, fancy meals and other inducements to curry favor with public company insiders so they would serve up their employers' secrets," U.S. Attorney Preet Bharara said in a statement.
The SEC said Kinnucan paid his sources with such things as cash and ski trips, and generated hundreds of thousands of dollars in annual revenue for Broadband in 2009 and 2010 when his clients paid for that inside information.
The cases are the latest in a federal probe into insider trading, known by the FBI as Operation Perfect Hedge.
That probe was first unveiled in October 2009 and has led to more than 60 people pleading guilty or being arrested.
Kinnucan was arrested without incident at his Portland, Oregon, home late Thursday afternoon, and was expected to appear Friday afternoon in a federal court in that city, the FBI said.
F5, Flextronics and SanDisk did not immediately respond to requests for comment. The criminal and SEC complaints were filed in the U.S. District Court in Manhattan.
The Kinnucan cases are U.S. v. Kinnucan, U.S. District Court, Southern District of New York, No. 12-mag-00424; and SEC v. Kinnucan in the same court, No. 12-01230.
(Additional reporting By Sinead Carew, Matthew Goldstein, Martha Graybow, and Katya Wachtel; Editing by Gerald E. McCormick)
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