Tom Hardin

Thomas C. "Tom" Hardin
Born:	c. 1978 Atlanta, Georgia area
Charges:	Conspiracy to commit securities fraud, Securities fraud
Sentence:	Time served (hours in custody)
Facility:	N/A (no incarceration)
Status:	Released (2015)

Thomas C. "Tom" Hardin (born c. 1978) is an American former hedge fund manager who became one of the most prolific confidential informants in U.S. securities fraud history.

Known by his code name "Tipper X," Hardin cooperated extensively with the FBI and Department of Justice after being caught trading on insider information, ultimately helping to build over 20 of the approximately 80 criminal cases in "Operation Perfect Hedge"—the largest insider trading investigation of a generation. His cooperation was so valuable that in 2015 he was sentenced to only time served—the hours he spent in custody when first approached by the FBI—despite pleading guilty to two felonies. Hardin has since reinvented himself as a speaker and consultant on ethics, compliance, and the psychology of white-collar crime.

Background and Education

Hardin grew up in a middle-class family in suburban Atlanta, Georgia. He attended the Wharton School of Business at the University of Pennsylvania as an undergraduate, earning a B.S. in Economics with a concentration in Finance.

Career in Finance

After Wharton, Hardin pursued a career in the hedge fund industry, eventually becoming a managing director at Lanexa Management LLC, a small New York-based hedge fund investment adviser with ties to Tiger Management founder Julian Robertson Jr.

By his late twenties, Hardin had achieved considerable success: a promising career, a new wife, and significant earnings potential. However, he harbored frustration that he lacked the "edge" that seemed to give other traders an advantage, a network of sources willing to share confidential information about companies.

The Insider Trading Scheme

Connection to Roomy Khan

In 2006, Hardin's trajectory changed when he began receiving calls from Roomy Khan, an investor friend and Silicon Valley analyst. Khan had cultivated relationships with corporate insiders who provided her with confidential information about upcoming mergers, earnings announcements, and other market-moving events.

Khan shared tips with Hardin about companies including Google Inc., Hilton Hotels, and Kronos Incorporated. The tips came from insiders including a Moody's rating agency analyst who had advance knowledge of corporate acquisitions.

"At the time, I'm thinking, 'I'll just take some crumbs off the table,'" Hardin later explained. "You don't really think about it as a crime."

The Kronos Trade

The trade that would ultimately catch law enforcement's attention involved Kronos, a software company being acquired by private equity firm Hellman & Friedman. In March 2007, Khan told Hardin that Kronos would be acquired on a specific date at a specific price.

Hardin initially didn't trade on the Kronos tip himself but passed the information to a friend at a proprietary trading firm. That friend relayed the information to Zvi Goffer, who purchased hundreds of thousands of shares. Goffer was later sentenced to 10 years in prison.

The next day, Hardin himself purchased Kronos stock, staying just below the threshold that would require senior partner approval: $999,999 worth of shares—just under the 1% of assets under management that would trigger oversight.

Cash Payments

In the spring of 2007, Hardin found himself standing on a Manhattan street corner holding an envelope stuffed with $10,000 in cash—payment for a Moody's analyst who had provided information about the Hellman & Friedman acquisition of Hilton Hotels. This moment, Hardin has said, was when he truly recognized he had "crossed a moral line."

Between 2006 and September 2007, Hardin made his fund approximately $1.7 million and himself $46,000 through insider trades. He also collected $30,000 to pay Khan's tipsters.

The FBI Confrontation

In July 2008, Hardin was dropping off his dry cleaning when two FBI agents approached him. They informed him they knew about four illegal trades he had made using insider information.

"Anytime someone calls you by your full name, you are probably in trouble," Hardin later joked about the agents addressing him as "Thomas Cody Hardin."

His initial thoughts were about his parents' reaction, whether his wife, who knew nothing of his illegal activity, would leave him, and the prison sentence he likely faced. But the agents offered him a choice: cooperate with the investigation or face prosecution.

"I immediately owned up and started cooperating," Hardin has said. After a few sleepless nights considering his options, he called the FBI and confessed to knowing about others involved in illicit trading. He volunteered to wear a wire.

Operation Perfect Hedge

Hardin became a crucial cooperating witness in what the FBI dubbed "Operation Perfect Hedge," a sweeping investigation into insider trading in the hedge fund industry. Over the next two years, as "Tipper X," Hardin:

• Recorded phone calls and in-person meetings with suspected insider traders
• Traveled to California to gather information
• Shared his knowledge of how insider trading networks operated in the industry
• Helped investigators understand the culture and mechanisms of illegal information sharing

His cooperation led directly to over 20 of the approximately 80 criminal cases that resulted from Operation Perfect Hedge. The most prominent conviction was that of Raj Rajaratnam, the billionaire co-founder of Galleon Group who was accused of making $75 million illegally. Rajaratnam was sentenced to 11 years in prison—at the time, the longest sentence ever handed down for insider trading.

Roomy Khan, whose tips had started Hardin down the illegal path, became "Tipper A" in the investigation—another cooperating witness who ultimately served a year in prison.

Guilty Plea and Sentencing

In December 2009, Hardin pleaded guilty to conspiracy to commit securities fraud and securities fraud in federal court in Manhattan. Due to the ongoing investigation, his case remained sealed and his identity hidden; court filings referred to him only as "Tipper X" until December 2010, when he was publicly identified.

The sentencing was repeatedly delayed as prosecutors continued to use Hardin's assistance. Finally, in February 2015—nearly seven years after his initial arrest—Hardin was sentenced by a federal judge to time served: merely the hours he had spent in custody when first approached by the FBI.

The judge commended Hardin for both his cooperation with prosecutors and for navigating what she called "insightful trauma." He had helped authorities and set an example for processing the consequences of his choices.

Aftermath

The consequences of Hardin's cooperation extended beyond the criminal cases:

• He lost his job amid the 2009 recession, before the case became public
• He was permanently banned from the securities industry
• His identity as a cooperating witness destroyed relationships with former friends and colleagues
• His wife, though she stood by him, faced scrutiny due to her association with him
• His felony conviction prevented him from even coaching his daughters' youth soccer teams

"I am my own undoing," Hardin has acknowledged, but adds that "there have been a lot of positives that have come out of it."

After years as an unemployed stay-at-home father, Hardin found purpose in speaking about his experience. In 2016, the FBI invited him to address their rookie agent class about the psychology of insider trading targets and the importance of understanding a target's mental state during investigations.

Post-Conviction Career

Hardin founded Tipper X Advisors, through which he consults and speaks on insider trading, conduct risk, ethics, and compliance issues. He presents to investment firms, banks, professional associations, and universities, drawing on his first-hand experience to explain how "good people can end up making terrible decisions—and how to recognize the warning signs before it's too late."

His message focuses on the psychology of ethical compromise: "The finance sector is especially vulnerable to these pressures," Hardin explains, "where falling short of targets can cost someone a bonus, their reputation or even their job."

Terminology

• Tipper: A person who provides insider information to someone who then trades on it; the information provider in an insider trading scheme.

• Material Non-Public Information (MNPI): Information about a company that is not publicly available and would be considered significant by a reasonable investor; trading on MNPI is illegal.

• Expert Network: Companies that connect investors with industry experts for legitimate research; became a focus of insider trading investigations when some networks facilitated illegal information sharing.

• Cooperation Agreement: An arrangement between a defendant and prosecutors in which the defendant provides assistance to investigators in exchange for consideration at sentencing.