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Research chief faces fraud charge

The president of an Oregon investment research firm has been arrested on conspiracy and securities fraud charges in a crackdown by US authorities on networking firms accused of passing along secrets about public companies.

John Kinnucan, of Portland, Oregon, is awaiting an initial court appearance in Oregon. The president of Broadband Research LLC was arrested late on Thursday at his home.

The charges came as Donald Barnetson, a former employee of California memory card maker SanDisk, pleaded guilty in Manhattan 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 a research firm in Portland.

Kinnucan was accused of obtaining secrets about publicly traded companies and selling the information to Broadband's clients, including hedge funds and money managers.

US attorney Preet Bharara said Kinnucan used financial incentives, fancy meals and other inducements to get public company insiders to reveal secrets. "He allegedly made a business model out of passing off those secrets to his hedge fund clients was legitimate research," Mr Bharara said.

FBI spokesomwan Janice Fedarcyk criticised 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, Sandisk and Flextronics International Limited 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 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.

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