Insider trading suspect: Are his threats ominous?

Insider trading case leads to arrest of suspect. Federal prosecutors say he should stay jailed because he threatened them during the insider trading investigation.

Multnomah County Sheriff/AP
This photo released by the Multnomah County (Ore.) Sheriff shows John Kinnucan of Portland, Ore., earlier this month. He is accused of obtaining secrets about publicly traded companies in an insider trading case.

Federal prosecutors said Friday that they received a series of threating, bigoted and obscene voicemail messages from one of two suspects in an insider trading case, and he should be kept behind bars.

John Kinnucan appeared in federal court in Portland after he was arrested Thursday on conspiracy and securities fraud charges.

He didn't enter a plea. U.S. Magistrate Judge John Acosta said Kinnucan would remain jailed, and a detention hearing was scheduled for Wednesday.

The government alleges that Kinnucan, as president of Broadband Research LLC, used inducements to pump information out of public company insiders. Then, the government said, he would sell the information to clients such as hedge funds and money managers as if it were the product of legitimate research.

In New York, a former employee of a California high-tech company pleaded guilty in the case Friday and agreed to cooperate with prosecutors.

Kinnucan has been under investigation since 2010.

The government said in court papers that even though the charges are "nonviolent, white-collar offenses," Kinnucan should be kept in custody until he stands trial because of the "ominous tirades" that began in December and ended Sunday.

Six assistant U.S. attorneys got the abusive messages, prosecutors said in the court documents. Kinnucan also made threats to one cooperating witness and attempted to contact another, the filing said.

The filing contained excerpts from the voicemails consisting largely of obscenities and racial and ethnic epithets.

"Yeah, too bad Hitler's not here. He'd know what to do with you," it quoted a Dec. 5 message as saying.

Kinnucan was represented by a public defender, T.J. Hester, and Acosta said that could continue until Kinnucan files an affidavit about his finances.

Hester said in court that he had just received the case and hadn't fully reviewed the allegations. He asked for copies of the voicemails. Calls to him later for comment about the government filing were not immediately returned.

Prosecutors want to transfer Kinnucan to New York for trial.

In Manhattan on Friday, Donald Barnetson, a former employee of California memory card maker SanDisk Corp., pleaded guilty in federal court to a conspiracy charge, agreeing to cooperate with federal authorities investigating insider trading.

Barnetson entered the plea to conspiracy to commit wire fraud and securities fraud. Authorities said he fed tips about SanDisk to Kinnucan's company.

U.S. Attorney Preet Bharara said Kinnucan used financial incentives and fancy meals among other inducements to obtain company secrets.

"He allegedly made a business model out of passing off those secrets to his hedge fund clients was legitimate research," Bharara said.

Janice K. Fedarcyk, assistant director-in-charge of the FBI's New York field office, criticized Kinnucan, saying: "That kind of information beats research every time. The only problem is it isn't legal."

Kinnucan is accused of obtaining inside information about earnings reports from companies such as F5 Networks Inc., Sandisk and Flextronics International Ltd. between 2008 and 2010 and relaying the numbers to his clients.

Kinnucan faces separate civil charges that were announced simultaneously by the Securities and Exchange Commission. The SEC says he was tipped off in July 2010 that a Seattle-based technology company was poised to report strong quarterly earnings. He passed the information to clients, who profited $1.6 million from illegal trades, the SEC's complaint alleges.

"Obtaining important and unreported financial results from company insiders and selling that information to hedge funds is not legitimate expert networking services — it's old-fashioned insider trading," SEC enforcement chief Robert Khuzami said in a statement.

Kinnucan's tipsters included employees of at least five publicly traded companies, the SEC said. It said he compensated them with cash, meals, ski trips and other vacations.

The SEC wants Kinnucan to return money it alleges he was paid for illegal tips, as well as any insider-trading profits generated by him or his clients. It also is seeking unspecified civil monetary penalties.

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