Reluctant Analyst Pressured by the FBI

Date: Monday, December 6, 2010
Author: Susan Pulliam, The Wall Street Journal

The Federal Bureau of Investigation raised the legal heat on an independent analyst who declined to help the government gather evidence in an expansive insider-trading investigation.

The FBI served a subpoena Friday to John Kinnucan, asking for two years of records relating to hedge-fund and mutual-fund clients of his independent research firm, Broadband Research. He said the subpoena also requested records relating to his technology-industry contacts, trading records, credit-card statements and phone bills.

The subpoena, issued by a grand jury in the U.S.'s insider-trading probe, said the requested documents involved "alleged" violations including conspiracy, fraud, securities fraud and false statements. Mr. Kinnucan says he has done nothing wrong.

On Nov. 19, The Wall Street Journal detailed an email sent by Mr. Kinnucan to his clients. The email described a visit by two FBI agents on Oct. 25, during which the agents asked him to record conversations with one of his contacts. The agents asked Mr. Kinnucan to record his conversations with a client at SAC Capital Advisors LP, the hedge fund run by Steven Cohen, a person familiar with the matter said.

SAC has declined to comment, as has the FBI.

That FBI visit is connected to an insider-trading investigation involving bankers, hedge-fund and mutual-fund traders, as well as consultants for "expert network" firms and analysts that is expected to produce some charges by year end, people familiar with the matter said.

John Kinnucan

Three days after the Journal's first article on the probe, the FBI raided three hedge funds and sent subpoenas to several mutual funds and hedge funds. The U.S. has arrested an employee of Primary Global Research LLC, a Mountain View, Calif., expert-network firm, on charges of distributing inside information. The employee's lawyer has declined to comment.

Mr. Kinnucan's email has become something of a cause célèbre on Wall Street: "Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information," the email said. "(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman's gracious offer to wear a wire and therefore ensnare you in their devious web."

Mr. Kinnucan, 53 years old, has become a subject of praise and criticism for his determination to fight the U.S. On Friday, he said he plans to defend himself if he faces criminal charges, which he says he believes is likely.

Mr. Kinnucan said the subpoena was delivered at 7:30 a.m. local time at his Portland, Ore., home as his children were preparing to go to school. "We heard a loud knock on the door," he said, where he was met by an FBI agent who delivered the subpoena. During the visit, Mr. Kinnucan said, his 13-year-old daughter began to cry. After the FBI agent left, he says his wife bought a hard drive so he can begin downloading the files necessary to comply with the government's request.

Mr. Kinnucan said he was interested at one point in becoming a lawyer. "I guess now I'll get a chance," he said.

In a separate development Friday, hedge fund Loch Capital Management LLC, which has been raided by the FBI, said it isn't being targeted by the government in the investigation. Other funds under scrutiny, including Diamondback Capital Management LLC and Level Global Investors LP, also have said they aren't targets.

Write to Susan Pulliam at