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Jury hears tangled web of trader-turned-FBI-informant Khan

by fwire  Aug 8, 2012 05:45 IST

#Business   #India   #NewsTracker  

NEW YORK (Reuters) - She used the names of her housekeeper and her gardener to buy cell phones to evade detection. She lied to the FBI and to her "buddies" on Wall Street.

Former technology company researcher-turned-FBI-informant Roomy Khan went to great lengths to conceal a tangled web of insider trading. But she ended up pleading guilty and testifying against a California hedge fund manager to whom she says she fed corporate secrets.

Khan, 53, a onetime friend of hedge fund founder Raj Rajaratnam, is one of the more intriguing figures in the government's crackdown on Wall Street insider trading.

Testifying at the trial of Whitman Capital founder Doug Whitman in federal court in Manhattan on Tuesday, Khan said she told Whitman about her sources of inside information at Polycom Inc (PLCM.O) and Google Inc (GOOG.O).

One was Sunil Bhalla, a Polycom executive at the time to whom she referred in her conversations with Whitman as "my guy." The other, called "the IR lady," was Shammara Hussain, then of the investor relations firm Market Street Partners, which had Google as a client. Lawyers for Bhalla and Hussain -- who faced civil charges but were not criminally charged -- could not immediately be reached to comment.

A former Intel Corp (INTC.O) and Galleon employee, Khan testified she had two or three meetings with Hussain. "I gave her a phone which I had purchased on my housekeeper's account. I did not want her (Hussain) to be connected to me."

Khan said Whitman, her neighbor in Atherton, California, sent her a basket of flowers with a "thank you" note when she tipped him about a July 2007 Google Inc second-quarter earnings announcement. The information came from Hussain, she said. Khan shared the same information with others she referred to in court as her "buddies on Wall Street."

Hussain agreed to pay $48,000 in January to settle a civil lawsuit brought by the U.S. Securities and Exchange Commission, according to court records.

Khan pleaded guilty to criminal charges in October 2009 but has yet to be sentenced. Dozens of traders, hedge fund managers and a former Goldman Sachs (GS.N) director, Rajat Gupta, have pleaded guilty or been convicted since 2009.

GARDENER'S PHONE

Khan's cooperation with the FBI and U.S. prosecutors helped the government's broad investigations of insider trading, including the May 2011 conviction of onetime billionaire Rajaratnam. He is serving an 11-year prison term.

Khan did not testify at Rajaratnam's trial.

She told the Whitman trial on Tuesday that when the FBI came knocking on her door in November 2007, "I lied about what was my relationship and what information Mr Sunil Bhalla gave me." Bhalla agreed last September to pay $85,000 to settle a civil lawsuit by the SEC, according to court records.

Even after Khan agreed in January 2008 to record phone conversations under the direction of the FBI, she said she wanted to contact her select group of associates secretly.

Khan, dressed in a black pants suit and pink shawl, said: "This time I went to my gardener and used that phone to communicate with some of my Wall Street colleagues."

She spoke in a matter-of-fact tone throughout her testimony, saying she told them the SEC had asked a few questions, but nothing about the FBI investigation.

Khan said Whitman "always pushed me and pushed me to get Polycom information" from Bhalla. Prosecutors played a recording of one phone conversation between Khan and Whitman in January 2009 in which he asks, "You hearing anything on Polycom?"

Whitman is charged with securities fraud and conspiracy, which carry a combined possible maximum prison sentence of 25 years. He has pleaded not guilty to the charges.

Prosecutors accuse Whitman of illegally using inside sources to get advance information on the financial performance of Google Inc, Polycom Inc and Marvell Technology Group Ltd (MRVL.O) between 2006 and 2009. They said he made $900,000 in profits.

The trial before U.S. District Judge Jed Rakoff started a week ago and is expected to last three weeks.

The case is USA v Doug Whitman in U.S. District Court for the Southern District of New York, No. 12-125.

(Reporting by Grant McCool; Editing by Dan Grebler)

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