On February 17, 2012, both the U.S. Attorney for the Southern District of New York and the SEC announced that they had brought charges against John Kinnucan, the President of Broadband Research Corporation, for insider trading. The criminal charges allege that he tipped clients regarding three companies, while the SEC’s civil case, which also named Broadband as a defendant, alleged that that he provided clients with non-public, material inside information that he obtained from insiders at one of those companies. According to CNBC, Mr. Kinnucan had been approached in November 2010 by federal agents and asked to cooperate with their investigation by wearing a wire, but refused to do so.
The charges in the criminal case assert that from 2008 through 2010, Mr. Kinnucan obtained material nonpublic information, regarding quarterly revenue numbers employees of three companies: F5 Networks, Inc. ("F5"), Sandisk Corporation and Flextronics International, Ltd. and provided that information to clients. He is charged with paying one of his sources approximately $27,500 for information, and investing $25,000 in the business of another source.
The SEC’s complaint alleges that Mr. Kinnucan obtained material nonpublic information from a source at F5. Three of his clients whom he tipped traded on that information, gaining profits or avoiding losses of nearly $1.6 million. In its Press Release, the Commission touted similar cases (some of which are discussed here and here) and the fact that it "has charged 22 defendants in enforcement actions arising out of its expert networks investigation, which has uncovered widespread insider trading at several hedge funds and other investment advisory firms … [with] illicit gains totaling nearly $110 million."
One of the more interesting aspects of the story is that in November 2010, Mr. Kinnucan was approached by what he described as "two fresh faced eager beavers from the FBI" who were "thoroughly convinced that [his] clients have been trading on copious inside information." He was under the impression that his telephone conversations had been recorded and sent an e-mail to clients announcing the visit, as well as his decision "declin[ing] the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web." Mr. Kinnucan told CNBC that he did not get back to the agents, but that his "business has been destroyed" by the investigation. Now, fifteen months later, he faces greater difficulties.
David Smyth’s Cady Bar the Door Blog has an interesting discussion of the case (available here).