The head of an Oregon investment research firm pleaded guilty to insider trading charges Wednesday, admitting that he enticed employees of public companies to feed him secrets that he then sold to hedge funds and money managers as if they resulted from legitimate research.
John Kinnucan, 55, of Portland entered the plea Wednesday to conspiracy to commit securities fraud and two counts of securities fraud, agreeing in a plea deal with the government that sentencing guidelines call for him to serve roughly four to five years in prison. The charges otherwise would have carried a potential prison term of up to 45 years. Sentencing was set for Jan. 15.
The guidelines calculation includes extra time for obstruction of justice for threats Kinnucan made to prosecutors, FBI agents and a cooperating witness during the investigation of Kinnucan and his company, Broadband Research LLC, a Portland investment research firm, authorities said. The government said he made nearly 25 threatening telephone calls from December through February, making repeated references to genocide, sexual and other forms of violence. He specifically threatened physical harm to one female prosecutor, the government said.
U.S. Attorney Preet Bharara said in a statement issued after the plea that Kinnucan engaged in an orchestrated campaign to obstruct the federal investigation.
“Today the truth came out of his own mouth, and he admitted that he is a securities fraudster, and his attempts to obstruct justice in a repugnant and disturbing manner were ultimately fruitless,” he said.
Kinnucan told U.S. District Judge Deborah A. Batts that he worked from 2008 to 2010 to obtain non-public information from employees of public companies so that he could relay the information to others who could make profitable trades ahead of the public announcement of the developments.
“I knew what I was doing was wrong and illegal,” the bearded Kinnucan said as he sat in court in his prison jump suit. He has remained incarcerated since his arrest after it was revealed he had made obscenity-laced phone calls to investigators.
Prosecutors said Kinnucan gathered secrets from co-conspirators who worked at F5 Networks Inc., Sandisk Corp. and Flextronics International Limited. They said he offered employees at public companies consulting fees or other non-monetary benefits to divulge secrets. The government said he paid one source about $27,500 for inside information and invested $25,000 in the business of another source.
The government said Kinnucan’s inside tips on a single earnings report involving F5 Networks caused two of his clients to make more than $1.5 million.
Defense attorney Jennifer Brown said outside court that her client was looking toward the future with his plea.
“It is a first step to repairing the damage that he has caused both to his family and to the public,” she said.