by T. GormanPosted on Posted in SECActions

There was another guilty plea in the expert network insider trading cases yesterday. This time it was John Kinnucan, the founder of Broadband Research, LLC of Portland, Oregon. When the expert network cases began Mr. Kinnucan was a very vocal critic, refusing to talk with government officials in a highly publicized incident and taking to the airwaves. Subsequently he was arrested and charged. After having been held in custody for months since he could not make bail and flying across the country courtesy of the federal government, Mr. Kinnucan pleaded guilty yesterday to one count of conspiracy and two counts of securities fraud. He also agreed to forfeit $164,000. U.S. v. Kinnucan, 1:12-cr-00163 (S.D.N.Y.).

From 2008 to 2010 Mr. Kinnucan obtained material non-public information about public companies which he sold to clients of his firm, according to court papers. The information came from officials at business organizations cultivated and at times paid by Mr. Kinnucan for inside information. Those individuals were employed at companies such as F5 Networks, Inc., Sandisk Corporation and Flextronics International, Ltd. Typically the information concerned matters such as pending earnings releases.

Once he obtained the inside information Mr. Kinnucan would immediately transmit it to firm clients who typically traded. In June and July 2010, for example, he repeatedly sought information about the pending earnings release for F5. On July 2, 2010 he received a telephone call from an F5 employee. During the conversation he learned that quarterly earnings would exceed guidance by a significant amount. Shortly after the call Mr. Kinnucan telephoned clients of Broadband, two of whom traded in shares of the company. Mr. Kinnucan also purchased F5 shares. Collectively the traders made profits and avoided losses of over $1.5 million.

According to the court papers, Mr. Kinnucan lied to firm clients about the sources of information in an effort to conceal them. He also sought to obstruct the ongoing federal criminal investigation from December 2011 through February 2012, repeatedly making threatening telephone calls to prosecutors and agents responsible for the inquiry. In addition, he attempted to contact a cooperating witness to harass him. Sentencing is scheduled for January 15, 2013.

The SEC’s parallel case has been stayed pending a resolution of the criminal case. SEC v. Kinnucan, 1;12-cv-01230 (S.D.N.Y. Filed February 17, 2012).

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by T. GormanPosted on Posted in SECActions

The on-going investigations into bid rigging in the municipal bond market are a continuing focus for the DOJ as well as the SEC. While the number of cases brought does not match those generated by the war on insider trading being waged by the Manhattan U.S. Attorney’s Office and the Commission, to date a substantial number of these case have been brought. Specifically, as a result of the coordinate efforts of the Antitrust Division of the Department of Justice, the FBI and the SEC 13 individuals have pleaded guilty to charges stemming from the on-going investigation. Three individuals have been convicted following a four week trial. The Commission has settled a number of actions. See, e.g., SEC v. GE Funding Capital Market Services, Inc., Civil Action No. 2:11-cv-07465 (D.N.J. Filed Dec. 23, 2011).

The most recent indictment names Philip Murphy, formerly an executive for a financial institution, as a defendant. He was indicted on two counts of conspiracy and one count of wire fraud as part of the on-going probe. The indictment alleges that Mr. Murphy, along with Rubin/Chambers, Dunhill Insurance Services Inc. or CDR, a broker of municipal finance contracts, and others obtained investment contracts by manipulating the bidding process under which they are awarded. These agreements are furnished by major financial institutions including banks, investment banks and insurance companies. Public entities seeking to invest money typically from the proceeds of municipal bonds invest in the instruments which have certain tax benefits. The contracts are usually awarded under a competitive bidding process administered by a broker.

Here Mr. Murphy is charged with rigging the bidding process to win business by conspiring with CDR and others. The firm manipulated the process in obtaining losing bids from other providers which is expressly prohibited by Treasury regulations. As a result certain parties won the contracts in the auction process. Municipalities paid inflated prices for the investment contracts. The charging papers also claim that Mr. Murphy obstructed the IRS in its efforts to determine if municipal issuers had correctly accounted for money that was owed to the U.S. Treasury.

In a separate count, Mr. Murphy was charged with conspiring with others to falsify bank records related to marketing profits. This permitted the conspirators to conceal kickbacks paid to CDR and others. U.S. v. Murphy (W.D.N.C Filed July 19, 2012).

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