Sangeeth Peruri’s wiretapped involvement in the Doug Whitman unlawful securities trading case – essential article excerpts and links – in an easily skimmable format.
UPDATE March 15, 2015: Today I want the reader to be aware that the legal approach used in these unlawful securities trading cases by the “overzealous” prosecutor – Preet Bharra – has been discredited. See NYT. See Fortune. Bottom line… according to those two links: If your aunt who works for XYZ Co. investor relations happens to mention something about XYZ but expects/gets nothing in return, and you, her niece, trade profitably on the info, neither of you will go to jail for insider trading. Lalahpolitico: However, depending on the 2016 national election outcomes, the US. Attorney of Manhattan legal winds could change yet again…
ORGINAL 2014 CONTENT…
BACKGROUND: Last week I published a letter from Bill Balson, resident of Los Altos Hills, airing concerns about the LASD school board candidate Sangeeth Peruri. Mr. Peruri has had an encounter with the SEC’s war on insider trading. He was not charged with any crime, but is named in wiretap evidence that he did receive insider information from Doug Whitman. Peruri was terminated by his employer Columbia Capital shortly before Peruri’s evidence was entered into the record at the Whitman insider trading trial July, 2012.
THE FINRA: Bill Balson says that Sangeeth Peruri told him and Town Crier staff that the reason for the employment termination by Columbia Capital was actually “over a compensation dispute.” However, that is not what is on the FINRA report.
Associated person terminated following firm finding of company policy violation related to internal escalation requirements
LALAHPOLITICO INTERPRETATION: To me that says the company had a policy about self- reporting attempts to engage its employees and the firm in insider trading. An employee who is given what he or she should know is confidential insider information needs to report that up the chain, presumably guided by company policies. (For example, most firms have a compliance officer who handles issues like this.) Perhaps the firm first heard about the Whitman-Peruri phone call, the one put into evidence, from the FBI or the SEC. The firm distanced itself. Peruri interacted with Dave Whitman professionally for two years. As I read it, only one wiretap phone call between Peruri and Whitman was entered as evidence in the Whitman trial.
BILL BALSON ADDS: LASD needs Board members who are above reproach. Mr. Peruri needs to publicly address the implications of his involvement with Mr. Whitman and others. What inside information about Marvell did he receive from Whitman? What other companies did he discuss with Whitman? What information did he give to Whitman in return? How did he use the inside information to benefit the investment funds he managed? What reports did he make to his compliance officer? What cooperation has he volunteered to prosecutors? LASD needs Board members who recognize wrongdoing and have the moral courage to promptly report the misconduct.
See Bill Balson’s longer Letter to the Editor.[hr]
HOW TO READ MY Google Research
– Skim the Red and Bold
During the last week I googled extensively to try to sort out what happened and what it might mean. The myriad of cases can be very confusing. I may have saved you quite a bit of time by collecting the most essential article links and article excerpts below. Below I use lots of red text, and also use black bold text on the excerpts. If you skim those parts you will get the overview. Dive down if you have the time or interest.
Key People: Whitman, Motey, Ng, Peruri . See below.
Key company: Marvell , a semiconductor firm
New Jargon: Expert Network – a method for quid for pro exchange of “knowledge” through many relationship hops. Much of the info is legitimate, just little known: some is illegal insider info.
Some people believe insider-trading is a victimless crime. I don’t. If you own stock and don’t use insider information, YOU are a victim.[hr]
Sangeeth Peruri FINRA – EX-hedgefund manager
Sangeeth Peruri – Semiconductor buy-side analyst in 2008
HEADLINE: “Simply Marvell-ous stock could double”
SEHAT SUTARDJA, HIS WIFE, and his brother started Marvell Technology Group a decade ago with the crazy idea of entering a semiconductor niche already crowded by two dozen competitors. Big ones, in fact, like Texas Instruments (ticker: TXN),STMicroelectronics (STM) and National Semiconductor (NSM).
Founded in 1995, Marvell company that made chips for disk drive was beset by two financial scandals. By 2008, its stock price fell to a 1/3 of its high. But with new acquisitions in 3G cellular, the company said it was on the mend.
Some buy-side investors are betting that Marvell can earn $1.00 to $1.50 if it executes well in the fiscal year ended January 2010 (again, not counting options). Sangeeth Peruri, of J&W Seligman, thinks such earnings would return the forward-earnings multiple on the stock from today’s 16 times earnings back to the level of over 20 times that Marvell enjoyed in years past. If so, Marvell’s shares could more than double from 11 today.
“Revenues are growing, driven by a lot of product cycles,” says Peruri. “You could get 30-50% annual earnings growth for the next three-to-five years.”[hr]
The insider trading case which involves Peruri
USA v. Whitman
|Filed: 7/27/2012, Entered: None|
ORDER as to Doug Whitman. Pending before the Court are several motions in limine filed by, respectively, the Government and defendant Whitman objecting tothe admissibility of various items of evidence. At oral argument held on July 25, 2012, the Court denied the motions as premature, without prejudice to renewing the objections at appropriate points during trial, with the exception of the portions of the motions that would become ripe in connection with the testimony of Karl Motey, whom the Government indicated would be the first substantive witness called to testify in this case. The Court directed that the parties jointly determine which portions of their motions related to Motey’stestimony, so that the Court could rule on those objections now. The parties accordingly indicated those items to the Court in an email sent July 26, 2012. Having reviewed the portions of the motions relevant to Motey’s testimony, the Court concludes as follows: 1) Defendant’s motion to exclude evidence that Whitman provided inside information about Marvell to Sangeeth Peruri is hereby denied. 2} Defendant’s motion to exclude evidence that, in 2007, Dave Karson, a Whitman Capital employee, was blocked from contacting employees at another company, Foundry, and later obtained a “Skype” account so that he could continue to contact those employees is hereby granted. 3) Defendant’s motion to exclude evidence that, in 2008 and 2009, Whitman received inside information about another company, TSMC, from an employee of that company, Steve Hsia, is hereby granted. 4) Defendant’s motion to exclude the portions of the audiorecordings relating to conversations between Motey and Whitman after the charged conspiracy, as well as a conversation between Karson and Motey, is hereby granted. All these rulings are subject to reconsideration if defendant”opens the door” at trial. SO ORDERED. (Signed by Judge Jed S. Rakoff on 7/27/2012)(dnd) (Entered: 07/27/2012)[[LALAHPOLITICO: I have noted that Peruri was unlucky. Three other motions to exclude evidence were granted, but his phone evidence was not ]]
Filed: 11/15/2012, Entered: None
OPINION as to Doug Whitman. On August 21, 2012, following a three-week trial, a jury convicted defendant Doug Whitman of two counts of conspiracy to commit insider trading and two counts of substantive insider trading in violation of the federal secu rities laws. Specifically, the counts charged that Mr. Whitman traded or agreed to trade on material inside information that he received from tippees who had, in turn, obtained the information from inside employees at Polycom, Inc., Google, Inc., and Marvell Technology, Inc. In connection with instructing the jury as to these charges, the Court confronted three interrelated issues as to which the law was unsettled. Those issues were: (1) Whether in a criminal prosecution under the federal securi ties laws, the scope of an employee’s duty to keep material non-public information confidential is defined by state or federal laws? (2) Whether a person who receives such information from someone outside the company must, to be criminally liabl e for trading on such information, know that the information was originally obtained from an insider who not only breached a duty of confidentiality in disclosing such information but also did so in exchange for some personal benefit? (3) Whether even a secondary tippee like Mr. Whitman must, in order to be criminally liable, have a specific intent to defraud the company from which the information emanates of the confidentiality of that information?…[See Opinion]… For the foregoing reasons, the Court, in charging the jury in this case, concluded that the answers to the questions posed at the charging conference were as follows: (1) The scope of an employee’s duty to keep material non-public information confidential is defined by fe deral common law, which imposes a uniform duty on all insiders to maintain the confidentiality of material nonpublic information entrusted to them as part of a relationship of trust and confidence and not to exploit it for personal benefit. (2) To be held criminally liable, a tippee like Mr. Whitman must have a general understanding that the inside information was obtained from an insider who breached a duty of confidentiality in exchange for some personal benefit, although the tippee need not k now the details of the breach or the specific benefit the insider received or anticipated receiving. (3) To be held criminally liable in a Dirks-like case, a tippee like Mr. Whitman must have a specific intent to defraud the company to which the information relates (and, indirectly, its shareholders) of the confidentiality of that information. (Signed by Judge Jed S. Rakoff on 11/14/2012)(bw)
Filed: 4/21/2014, Entered: None
ORDER: As to Doug Whitman. On August 20, 2012, defendant Doug Whitman was convicted by a jury of two counts of conspiracy to commit securities fraud and two counts of securities fraud. This Court sentenced defendant to 24 months of imprisonment followed by one year of supervised release. At defendant’s sentencing on January 24, 2013, the Court granted bail pending appeal, and defendant appealed shortly thereafter. See Tr., Jan. 24, 2013, at 58:18-60:21. On April 2, 2013, this Court decided not to set a specific surrender date because defendant’s appeal was pending before the Second Circuit. See Amended Judgment in a Criminal Case, Apr. 2, 2013, at 3. On February 19, 2014, the Second Circuit affirmed Whitman’s conviction by summary order. See United States v. Whitman, No. 13-491, 2014 WL 628143 (2d Cir. Feb. 19, 2014). On March 19, 2014, Whitman petitioned for rehearing en banc, see United States v. Whitman, No. 13-491, Doc. No. 128 (2d Cir.), and the Second Circuit has not ruled on the petition as of April 18, 2014. Therefore, the Second Circuit has issued no mandate following defendant’s appeal. On April 11, 2014, the Court held a hearing to determine whether to set a date for defendant’s surrender to the Bureau of Prisons. In advance of the hearing, both parties detailed their arguments in letters submitted to the Court, which will now be docketed. After reviewing the parties’ submissions and hearing argument at the April 11 conference, the Court made the following rulings from the bench, which are reaffirmed in this Order: First, the Court has the authority to set a surrender date before the mandate from the Second Circuit issues. See, e.g., United States v. Vilar, 05 Cr. 621, slip op., at 6-7 (S.D.N.Y. Nov. 19, 2013). Second, on consent of both parties, defendant’s surrender date is hereby set as follows: Defendant is to surrender to the Bureau of Prisons no later than three business days after his daughter, Katherine, reports to college in August or September 2014, provided that in no circumstance shall defendant surrender later than September 30, 2014. Third, the parties are hereby directed to jointly call Chambers by no later than May 30, 2014, at noon Eastern time, to apprise the Court of the date on which defendant’s daughter will start college or to update the Court as to when that date will be known. SO ORDERED. (Signed by Judge Jed S. Rakoff on 4/21/2014)(dnd) (Entered: 04/21/2014)
|Filed: 5/15/2014, Entered: None|
TRANSCRIPT of Proceedings as to Doug Whitman re: Hearing held on 4/11/14 before Judge Jed S. Rakoff. Court Reporter/Transcriber: Patricia Kaneshiro-Miller, (212) 805-0300, Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Redaction Request due 6/9/2014. Redacted Transcript Deadline set for 6/19/2014. Release of Transcript Restriction set for 8/18/2014. (Rodriguez, Somari) (Entered: 05/15/2014
[[ LALAHPOLITICO: I understand it costs $200 to obtain a transcript. I do not know if the transcript has been redacted in any way and therefore would not be worth obtaining. It would be interesting to know exactly what was the kind of information Peruri receives from Whtiman. An early view of a quarterly financial report? of a shipments number? of an orders number? of a surprise acquisition announcement? A person should know all those are “inside.” But if it was something like the company is looking for xyz engineers, wheras before it only hired mnop engineers, or that Motorola was evaluating Marvell chips for some upcoming phone… probably that’s not really confidential inside information. If the particular kind of information has been redacted, then what do we think? ]]
More than One Insider at Marvell – Stanley Ng
LALAHPOLITICO: It seems there was more than one “leak” at Marvel. Here is a signficant one.
“Mr. Ng worked as the so-called reporting manager to the Securities and Exchange Commission, which gave him access to Marvell’s earnings releases before they were made public.”
The former employee of Marvell Technology, Stanley Ng, was arrested on charges that he was part of an insider trading scheme that funneled corporate secrets to hedge fund traders.
August 10, 2011, Wednesday
December 7, 2011, Wednesday
More on the Wiretaps
Mr. Wang, 39 years old, is cooperating with prosecutors and is expected to act as government witness at Mr. Whitman’s trial. According to court filings, Mr. Wang is expected to testify that he had an agreement with Mr. Whitman to exchange inside information about a variety of technology companies, including Cisco Systems Inc., Polycom Inc. and Marvell Technology Group Ltd.
“Wang would get information from Whitman relating to Polycom and Marvell, which Whitman indicated was from his ‘contacts’ and, in exchange, Wang would provide Whitman with inside information on Cisco and other companies,” Assistant U.S. Attorney Christopher LaVigne said in court papers.
Ms. Khan and Mr. Motey have both pleaded guilty to insider-trading charges and agreed to cooperate in the government’s probe.
Wang led to Motey, who led to Whitman, who led to Peruri
“As part of his cooperation with federal authorities, Wesley Wang also secretly recorded Motey discussing illegal insider trading deals. Like Wang, Motey began cooperating — and recording more than 400 conversations and meetings for investigators — soon after the FBI approached him in April 2009.”
Lalahpolitico: The best long-form journalism on the SEC “war on insider- trading” is this excellent piece in Vanity Fair Magazine.
HOW MOTEY GOT CAUGHT IN SEC INTRIGUE
Excerpt from Vanity Fair…
“An F.B.I. agent approached Wesley Wang on January 7, 2009, and he agreed to cooperate within a week. If Wes Wang was a mediocre [securities] analyst, he proved to be a superstar informant, naming at least 20 people he believed were involved in insider trading. Prosecutors would eventually gush that Wang “was the key witness that was able to open the door to literally dozens of other witnesses.” He provided “the government with answers to questions it did not even know to ask,” a prosecutor told a court in early 2013. “He has provided so much information that the government has not yet been able to investigate all of it for want of manpower.”
What little detail is available on Wang’s illegal exploits suggests he was alternately resourceful and a bit pathetic. In one job he boasted that he had an excellent source inside the Target department-store chain; it turned out to be an assistant store manager in Oakland whose tips were, as might be expected, useless. Apparently Wang had better success chatting up a neighbor, a Cisco Systems executive, whose information he was able to trade to others. Among those Wang named was his onetime boss, Doug Whitman, of Whitman Capital, about whom he testified at a three-week trial last summer; Whitman was eventually sentenced to two years in prison.
COOPERATING MOTEY = ZERO JAIL TIME
In 2005, the Wall Street Journal named Karl Motey a top securities analyst in the semiconductor industry, and a year later he started the Coda Group research consulting company in Los Altos, California.
Motey began cooperating with authorities soon after a Federal Bureau of Investigation agent stopped him on the street in April 2009. He pleaded guilty in 2010 to conspiracy and securities fraud.
His cooperation helped lead to more than 20 convictions of other defendants, according to prosecutors.
RESULTS OF WHITMAN 2014 APPEAL – REJECTED
““The endorsement of the conscious avoidance theory will certainly embolden the government to rely upon it in securities fraud cases going forward,” Fischer said yesterday in a phone interview.
Whitman was sentenced to two years in prison for trading on illicit tips about Polycom Inc., Google Inc. and Marvell Technology Group Ltd. He said he’d received the information from his neighbor, former Intel Corp. executive Roomy Khan. The U.S. said he made $935,000 on the trades based on her tips, and those of Karl Motey, a consultant Whitman hired.
Whitman called Khan “Ms. Google” and told another witness that Khan “had a mole” at the company who provided her with information, the appeals court said. Jurors could “easily conclude that Whitman knew that Khan courted trouble.”
The appeals court upheld a lower-court finding in an SEC lawsuit that Joseph Contorinis, an ex-Jefferies Paragon Fund money manager convicted of insider trading in 2010, must turn over $7.2 million he made for the fund and $2.5 million in interest. ”
Exactly what Motey did with Whitman
Karl Motey, a former computer-chip industry analyst, testified that he got confidential revenue figures for Marvell Technology Group Ltd. (MRVL) from company insiders and gave the data to Whitman Capital LLC founder Doug Whitman.
Motey told jurors today at Whitman’s insider-trading trial that he took tips from two employees at Marvell from 2007 until April 1, 2009, when he was approached by Federal Bureau of Investigation agents. He passed the information to his hedge- fund clients including Whitman, he said. His alleged Marvell sources, Bill Brennan and Sam Miri, haven’t been charged.
“I would tell him that the information came from a particular contact at Marvell,” Motey said during the second day of Whitman’s trial in Manhattan federal court. “He would thank me and tell me the information was useful to him.”
Motey read to jurors from notebooks he kept with entries in English and Farsi regarding information about Marvell that he said came from Miri and Brennan. They gave him material he knew to be confidential, including revenue figures before they were reported publicly and the company estimates of how Marvell expected to do financially in future quarters.
AN MITIGATING ARGUMENT?
Aug 3 2012 | 10:56am ET
The lawyer for accused insider-trader Doug Whitman took aim at the first of the government’s star witnesses yesterday—and won some concessions from him.
Karl Motey had testified on Wednesday that he acquired confidential information about Marvell Technology Group from two sources and that he passed those tips on to Whitman, who ran hedge fund Whitman Capital. But Whitman’s lawyer, David Rody, sought to poke holes in that story.
Under cross examination, Motey testified that he told Whitman that “Marvell was leaky.” If the information Motey allegedly sold Whitman was widely disclosed, it would not qualify as non-public.
Motey also acknowledged that some of the information he gave Whitman was wrong, and Rody showed Motey research reports the latter had written before he claims to have begun passing tips to Whitman.
Rody also told U.S. District Judge Jed Rakoff that they plan to show that Whitman’s use of [the words] “source” or “mole” for Motey’s contacts at Marvell, who have not been charged with any wrongdoing, do not mean that Whitman knew the information they provided was secret.
LALAH THE FINAL ANALYSIS – CLOUDY
LALAHPOLITICO: Is this the information is on the tape of the conversation between Whitman and Peruri – “early” Marvell sales figures and “early” revised quarterly estimates? If so, that says “insider.” Anyone in tech would know that.
OTHER RESOURCES: Sympathy for the Devil?
Walter Pavlo is a Forbes Columnist who seems to think the Insider Trading prosecutions go too far…Find some sympathy for the financial industry here…
1. There Must be 50 Ways to do Insider Trading, sung to the tun of Paul Simon’s 50 way to leave your lover.
2. Forbe columnist ‘s wrong prediction of Doug Whitman’s verdict.
3. Further reflections on the Whitman Guilty Verdict by Forbe columnist
4. More legal fine points — Chiasson / Newman Appeal Heard on Insider Trading Conviction.
5. Throw the book at ’em…Doug Whitman Gets No Break on Prison Senence, But Few do