NEW YORK (Reuters) - California hedge fund manager Doug Whitman was sentenced on Thursday to two years in prison after he became the first defendant in a broad U.S. crackdown on insider trading to take the stand to convince jurors of his innocence.
U.S. District Judge Jed Rakoff in Manhattan imposed the sentence, which was less than half the 4-1/4 to 5-1/4 years that federal prosecutors wanted.
Whitman, the founder of Whitman Capital LLC in Menlo Park, was convicted in August of securities fraud and conspiracy over his involvement in two insider trading schemes between 2006 and 2009.
Prosecutors said one scheme resulted in more than $900,000 of illegal profit from trading the shares of Google Inc (GOOG.O) and video-conferencing company Polycom Inc PLCM.O.
They said the other involved "soft-dollar" payments used to obtain tips on and then trade in chipmaker Marvell Technology Group Ltd (MRVL.O).
Rakoff said he believed Whitman "repeatedly perjured himself" on the stand and was "willfully, blatantly aware that he was trading on inside information every step of the way."
But he also noted evidence of the defendant's good character, including his assistance to children with learning disabilities, in imposing punishment.
Before learning his punishment, Whitman, 55, choked up as he read from a prepared statement in which the Atherton, California, resident alluded to the breakup of his 20-year marriage soon after he was charged.
"This has been the most painful and shaming experience of my life," Whitman said. "My father taught me not to cut corners and I tried to apply that to my life and my job ... My trial and my conviction have served as a rude and bitter wakeup call."
Whitman was also fined $250,000 and sentenced to one year of supervised release. He was granted bail pending an expected appeal. Federal prosecutor Chris LaVigne said the government will seek a forfeiture of $935,306 of illegal profit.
"Doug Whitman maintains his innocence and looks forward to vindication on appeal," his lawyer David Anderson said in a statement.
Whitman had sought a maximum prison term of six months.
Another of his lawyers, David Rody, told Rakoff that a long sentence was not needed for deterrence, and that prosecuting a "relatively smaller player" such as Whitman was enough to convince others in the hedge fund industry that "nobody's safe."
U.S. Attorney Preet Bharara in New York has obtained well over than 60 guilty pleas and verdicts since publicly revealing his insider trading probe in late 2009.
Prosecutors said Whitman tried to make illegal profit with the help of insiders such as Roomy Khan, a former Intel Corp (INTC.O) employee who passed tips on Google and Polycom, and Karl Motey, a consultant who passed tips about Marvell.
Also testifying against Whitman was Wesley Wang, a former Whitman Capital employee who later worked at Steven Cohen's SAC Capital Advisors LP.
Khan, Motey and Wang have pleaded guilty to various crimes linked to insider trading. They have been cooperating with investigators with the hope of receiving lighter sentences.
As in many other recent insider trading prosecutions, the government's evidence against Whitman included telephone conversations secretly recorded by the FBI.
Khan was also a central figure in the government's prosecution of Galleon Group LLC hedge fund founder Raj Rajaratnam, a former billionaire who is now serving an 11-year prison sentence for insider trading.
Wang, meanwhile, has given the government information on as many as 20 people who may have been involved in insider trading, prosecutors have said. Among those he named was Dipak Patel, a former SAC portfolio manager.
Rakoff often imposes lesser sentences than the sentencing guidelines recommend and ignored the 10- to 12-month recommended lengthening of Whitman's sentence for perjury.
The judge said that provision could "chill" defendants from defending themselves under oath and be "an impediment to innocent people taking the stand and clearing their name."
In October, Rakoff sentenced former Goldman Sachs Group Inc (GS.N) director Rajat Gupta to two years in prison for tipping Rajaratnam - well below the eight to 10 years guideline range that prosecutors wanted. Gupta is appealing his conviction.
The case is U.S. v. Whitman, U.S. District Court, Southern District of New York, No. 12-cr-00125.
Reporting by Jonathan Stempel in New York; Editing by Tim Dobbyn and Andre Grenon