The U.S. Attorney’s Office in Manhattan and the SEC continue to expand the expert networking investigation. As last week drew to a close criminal and civil insider trading charges were brought against John Kinnucan. U.S. v. Kinnucan, 12-mj-00424 (S.D.N.Y. Unsealed Feb. 17, 2012); SEC v. Kinnucan, Civil Action 12-cv-01230 (S.D.N.Y. Filed Feb. 17, 2012). Mr. Kinnucan is the president of Broadband Research Corporation, an expert network company which was also named as a defendant in the Commission’s action. Mr. Kinnucan made headlines early in the expert network investigations when he circulated an e-mail claiming the FBI had approached him about wearing a wire.

The criminal complaint alleges that Mr. Kinnucan obtained material non-public or inside information such as quarterly revenue numbers from employees at publically traded companies. The SEC complaint limits the time period to 2009 through 2010 while making the same general allegation.

Both complaints focus on June and July 2010 when Mr. Kinnucan is alleged to have obtained information from an employee of F5 Networks, Inc. that the quarterly revenue for the company would exceed street expectations. Specifically, an employee at F5 with whom Mr. Kinnucan is alleged to have cultivated a relationship over a period of time, told him in a telephone conversation on July 2, 2010 that the unadjusted revenue number for F5 was $232 million.” That confirmed the company would exceed revenue guidance of $220 million. Mr. Kinnucan is alleged to have immediately furnished this information to several clients at least three of whom traded making profits or avoiding losses of about $1.58 million.

In the criminal case Mr. Kinnucan has been charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud and two counts of securities fraud. In the civil case Mr. Kinnucan and the firm have been charged with violating Exchange Act Section 10(b). Mr. Kinnucan has been arrested. Both cases are pending.

The court papers in both cases suggest that the charges against Mr. Kinnucan will be expanded in the future. This is bolstered by the fact that a former SanDisk Corporation executive pleaded guilty to participating in a securities fraud scheme last week. Specifically, Donald Barnetson pleaded guilty to one count of conspiracy to commit securities and wire fraud. Prosecutors claim that Mr. Barnetson furnished inside information to Mr. Kinnucan in July 2010 about the future earnings of his company and again in September 2010 about confidential negotiations regarding a dispute between SanDisk and Apple Inc., according to a Businessweek report.

To date the SEC has charged twenty-two defendants in connection with the expert network investigation.

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