With his mother watching from a court bench, a SanFrancisco hedge fund founder testified Monday that his trades were based onlegitimate research rather than inside information.
Douglas Whitman, 54, denied charges that he used inside information to makenearly $1 million since 2006.
His testimony was unusual because several other defendants who went to trial inthe past several years on insider trading charges in Manhattan chose not totestify. And the majority of the dozens of people charged in the last fouryears in several related insider trading investigations have pleaded guilty.
But the Whitman case stood apart from others even before the defendant took thestand. At his trial, the government for the first time found it relevant tocall to the witness stand Roomy Khan. The California analyst-turned-day-tradertold jurors last week how she made the pursuit of inside information a prizedfeature of her trading strategy since 1996 and how she shared her secrets withher financial friends.
Khan had testified that Whitman was among several close friends she routinelyfed inside tips between 2004 and 2008, when he lived a 5-minute walk away fromher home in Atherton, California.
She also was forced to reveal she had pleaded guilty in 2001 and again in 2009to federal charges, including insider trading, wire fraud and obstruction ofjustice. She also admitted hiding from the FBI that she was trying to warn herfriends that she was cooperating with the government and that she had forged adocument in a civil case brought by a former maid.
Whitman acknowledged that he spoke to Khan about once a week after meeting herin 2002 through a co-worker at his firm, Whitman Capital, and was interested inwhat the one-time Intel Corp. employee had to say about the semiconductorindustry.
"She's very smart and knew a lot," Whitman said.
But he said she did not give him inside information in January 2006 aboutPolycom 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 whocalled him four times within a half-hour time period one day in December 2005,including once when he was walking to lunch with his mother, who watched from afront-row spectator bench Monday.
Whitman said Khan weeks later told him in a phone conversation not to commitmoney to Polycom until she checked with a friend who worked at the company toget 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 weresold after earnings were announced. He said that represented about a third of apercent of the 14 percent annual profits the hedge fund average for customerswho invested a total of about $100 million.