Was analyst providing inside information or just insight?

Armies of Wall Street lawyers are massing for battle as the Justice Department ramps up perhaps its biggest insider-trading investigation in history.

But an Oregon technology analyst who has unexpectedly become one of the public faces of the probe — by openly defying the government’s efforts to get his cooperation — says he hasn’t hired an attorney and expects to defend himself in court “if it comes to that.”

“I think I can convince a jury that I’ve done nothing wrong,” said John Kinnucan, who for the last 11 years has operated a tech industry information service known as Broadband Research.

Kinnucan, 53, suddenly found himself on the national stage after an e-mail he sent to investor clients in October was emblazoned on the front page of the Wall Street Journal on Saturday.

In the e-mail, he warned clients that he had been visited by two FBI agents “thoroughly convinced that my clients have been trading on copious inside information.... We obviously beg to differ.”

The Journal report said relatively small players like Kinnucan were under investigation as part of a broad probe that had “the potential to expose a culture of pervasive insider trading in U.S. financial institutions, including new ways non-public information is passed to traders through experts tied to specific industries or companies.”

Justice Department and FBI officials have refused to discuss the probe, but its scope was suggested by Preet Bharara, the U.S. attorney for Manhattan, in a recent speech. He called insider trading “rampant” and said that “many of the people who are going to such lengths to obtain inside information for a trading advantage are already among the most advantaged, privileged and wealthy insiders.”

Kinnucan said the FBI agents were after bigger fish when they came to his Portland home: They wanted him, he said, to secretly record phone calls with a specific client. He has declined to disclose the client of interest to the bureau, saying the agents warned him that he would be charged with obstruction of justice.

He said he refused to cooperate because he believed that “in the eyes of many I would be making an implicit admission of guilt” by wearing a wire.

Any charges resulting from the probe could turn on the question of what is illegal in the vast daily flow of information about companies and their stocks.

Kinnucan is one of many independent researchers who have sprung up in recent decades to supply information about companies to hedge funds and other big investors. All of those players are, of course, constantly looking for an edge — a tip that gets them into a stock before it turns hot, or out of a stock before it plunges.

Kinnucan’s specialty is technology, an industry he began to study after doing graduate work in computer science in the 1980s. In 1994 he joined a Portland mutual fund firm, Crabbe-Huson, as a tech analyst. He later became a fund manager there, then launched his own hedge fund in 1996.

But after betting heavily against Internet stocks in 1998 — two years too early — Kinnucan said he decided to shut down his hedge fund and move into the research field. “I was never going to get rich, but it was a much better quality of life,” he said.

He said he has focused on developing a network of technology industry manufacturers’ representatives. These reps are independent sales agents who work on commission for tech firms, and thus are valuable sources of information on what’s selling and what isn’t, and other product trends in the fast-changing industry.

Kinnucan said he follows trends in about 50 firms, including Cisco Systems, Micron Technology and SanDisk Corp. He said he competes with the often better-known analysts of big Wall Street investment banks.

“What I do is no different from what the banks are doing” in terms of research, he said. His edge, he insisted, isn’t in the raw data he gets but in his intuition about what the information implies about industry shifts.

“My information isn’t necessarily better than any banking analyst’s,” he said. “But I have a highly refined sense of timing.”

Historically, the government has defined illegal insider trading as securities trades based on “material, non-public information” — for example, leaked data about a company’s upcoming earnings report or about merger discussions.

Given the wide scope of the government’s probe, prosecutors obviously believe they have uncovered instances of information sharing and resulting trading that are both well over the line of what is legal.

Kinnucan said he understands the legal limits, and knows better than to pursue that kind of information. “My sources are the foot soldiers and worker bees in the industry. They don’t have access to ‘material’ information,” he said.

Nor does he pay the manufacturers’ reps in his network, he said. They talk to him, he said, because he helps them in other ways, such as by providing his own insight on industry trends or by sharing investment ideas.

Kinnucan said he believed the government had been taping his phone calls with clients “for quite some time,” and that those calls would show he hadn’t broken insider-trading statutes.

Even so, he said, his decision to defend himself publicly is moot as far as preserving his business is concerned: His big-name clients, which he said have included mutual fund firm Janus Capital Group and hedge fund Citadel Asset Management, all have dropped him since he disclosed that he was under investigation.

His business “is finished,” he said. He isn’t sure what he’ll do next for a living to support his wife and two kids, 10 and 13. “My wife wants us to go grow vegetables somewhere.”

tom.petruno@latimes.com