John Kinnucan, the analyst who alerted Wall Street that the FBI wanted him to secretly wiretap one of his hedge fund clients as part of its insider-trading probe, is now saying he’s the one the government is looking to entrap.
In an email sent to the FOX Business Network, Kinnucan said the “Feds are at this time traversing the country, trying to con my former industry contacts into wearing a wire against me, by also threatening them with arrest if they refuse to cooperate. They try to use intimidation tactics, just as they did with me, saying things like, ‘The longer you wait to cooperate, the worse it’s going to be for you.'”
In a separate interview, Kinnucan added that the FBI had contacted at least five people he had done business with over the years as a researcher who provided analysis to various hedge funds about technology stocks. He declined to name any of the people contacted.
Kinnucan had run Broadband Research, a small “expert network” firm that counted as clients some of the biggest hedge funds in the country, including Citadel LLC, SAC Capital and Maverick Capital, all of which he had alerted about the Justice Department’s insider-trading probe late last year when he sent out an email stating that “two fresh-faced eager beavers from the FBI” had showed up to his home in Portland, Ore., accused him of being part of an insider-trading ring and asked him to wire tap a fund manager he had done business with in exchange for leniency.
Kinnucan says he refused to cooperate, but the investigation — the largest insider trading inquiry in years — has so far netted a slew of arrests and plea deals, the high-profile conviction of former Galleon Group fund chief Raj Rajaratnam, and is expected to generate many more in the weeks and months to come.
Kinnucan was a long-time analyst on Wall Street before he launched a successful research firm several years ago that supplied detailed information to hedge funds on technology stocks that has become the focus of the government’s insider-trading probe.
Government officials believe that some of the information gathered by such experts and passed on to investors in the hedge fund industry constitutes illegal, non-public information. What has made the investigation unusual, aside from its size and scope, is that the government has been aided by the use of wiretaps of secretly recorded conversations of various player implicated in the probe.
Until recently, the courts have generally allowed wiretaps only for investigations involving terrorists and organized crime. In court documents, government investigators said they received authority to wiretap Kinnucan’s phone in connection to their investigation of former SAC fund manager Donald Longueuil, who recently pleaded guilty to trading on insider information. (Like Citadel, SAC Capital has received a subpoena as part of the probe. The fund has said in the past that it has done nothing wrong.)
Though largely unknown outside the hedge fund industry, Kinnucan found instant fame on Wall Street with his email blast about the wide-ranging insider trading probe. But more recently, Kinnucan has run into tough times; he was forced to end his research firm as word spread of the FBI’s interest in his activities. (He received a subpoena from the Feds just after he sent the email.). He now manages money, he says, and according to a series of sometimes acrimonious and unusual emails he sent to clients and reporters, he’s been hounding several of his clients to pay him money he says they owe him.
Kinnucan says all but one of his clients, Maverick Capital, has paid him. Just recently, Kinnucan sent an email to Maverick’s chief Lee Ainslie, stating “Yo Lee homey, sorry to break it to you, but looks to me likely that Maverick will soon be charged with insider trading. Just thought I’d let you know…Regards, JK.”
Attached to the email was a Bloomberg story about the guilty plea of technology executive Walter Shimoon, who in testimony says he passed insider information to Kinnucan. In a separate interview, Kinnucan says the information he received from Shimoon was described as being “worthless” by his clients and didn’t constitute illegal “inside” information.
A spokesman for Maverick says the firm “is confident it will reach an amicable resolution with Mr. Kinnucan on the money he says he is owed.” Maverick says it has not received a subpoena as part of the probe.
As the FBI has appeared drawing closer to filing charges to Kinnucan, he has also begun to plea his innocence in emails to various reporters.
“One other thing I wanted to point out to you is that the wiretaps contain several instances of me declining to break the law, even when requested to do so by my clients,” he wrote in another email to FOX Business. “In particular they were asking me for specific numbers about certain companies, and I refused to provide them, even though I did indeed have specific numbers. In the event, the numbers turned out to be so far off as to be worse than useless, but that was only known after the fact. Net, I was well aware of where the line stood, and declined to cross it on numerous occasions, even at the expense of damaging my client relationships.”
Meanwhile, Kinnucan has provided different accounts about the fund manager he was originally asked to tape. Initially, reports circulated that it was an executive at SAC Capital and Citadel, two major hedge funds that have received government subpoenas. Kinnucan has denied in emails and interviews that the executive worked at either firm.
But Kinnucan now tells FOX Business that the FBI asked him to wire tap a fund manager at Citadel.
“They said to me that this was a person that you may have had a prior relationship with,” Kinnucan says, adding that he barely spoke to the fund manager the FBI had named during 2010, the year Kinnucan says the FBI wiretapped his telephone. In those conversations the fund manager “wasn’t really interested in what I had to say.” Kinnucan says he spoke to the fund manager more frequently in prior years.
A spokeswoman for Citadel declined to comment. A spokeswoman for the U.S. attorney’s office also declined to comment.
Kinnucan, meanwhile, says it’s only a matter of time before he joins the growing ranks of executives snared in the burgeoning probe.
“‘We really want to get him,'” Kinnucan says several FBI agents told a former colleague about the government’s desire to charge him, in an email to FOX Business. “This sentiment of course begs the question,” Kinnucan continues. “Why don’t they just come get me? After all they have many, many hours of tapes supposedly documenting criminal behavior on my part, so why do they feel the need for more? Why, indeed?”
The FBI had no comment on Kinnucan’s question.