Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, February 19, 2012

SEC Charges Expert Consultant with Insider Trading

On Friday the SEC charged John Kinnucan and his expert consulting firm Broadband Research Corporation with insider trading. The charges stem from the SEC’s ongoing investigation of insider trading involving expert networks. The SEC alleges that Kinnucan and Broadband claimed to be in the business of providing clients with legitimate research about publicly-traded technology companies, but instead typically tipped clients with material nonpublic information that Kinnucan obtained from prohibited sources inside the companies. Clients then traded on the inside information. Portfolio managers and analysts at prominent hedge funds and investment advisers paid Kinnucan and Broadband significant consulting fees for the information they provided. Kinnucan in turn compensated his sources with cash, meals, ski trips and other vacations, and even befriended some sources to gain access to confidential information.

In a parallel criminal case, Kinnucan has been arrested and charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud.

The Kinnucan story has had colorful twists and turns. Last year Kinnucan achieved notoriety for loudly challenging federal authorities and their efforts to use him as an informant. NYTimes Dealbook, Tech Analyst Arrested in Insider Trading Crackdown. After his arrest, prosecutors urged a judge to detain Kinnucan because of a "pattern of threats and intimidation" against a witness and federal authorities. Bloomberg, Kinnucan’s Phone Threats Should Bar His Release, U.S. Says

The SEC has charged 22 defendants in enforcement actions arising out of its expert networks investigation. The allegations involve insider trading in the securities of 12 technology companies — including Apple, Dell, Fairchild Semiconductor, Marvell Technology, and Western Digital — for illicit gains totaling nearly $110 million. According to the SEC’s complaint filed in federal court in Manhattan, Kinnucan’s misconduct occurred from at least 2009 to 2010.

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