UPDATE 1-Whitman Capital founder gets 2 years for insider trading

* Doug Whitman convicted on Google, Marvell, Polycom trades

* Whitman had taken stand in own defense, denied wrongdoing

NEW YORK, Jan 24 (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 trades in shares of Google Inc and video-conferencing company Polycom Inc. They said the other involved "soft-dollar" payments used to obtain tips on and then trade in chipmaker Marvell Technology Group Ltd .

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 choked up as he read from a prepared statement in which he 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. Federal prosecutor Chris LaVigne said the government will seek to force him to forfeit about $935,000 of illegal profit.

The defendant is expected to appeal. His lawyers said there are several possible grounds for overturning the conviction. They had sought a maximum prison term of six months.

David Rody, a lawyer for Whitman, said a long sentence wasn't needed to deter others in the hedge fund industry from insider trading. He said the prosecution of a "relatively smaller player" like Whitman was enough by itself to convince others that "nobody's safe."

MULTIPLE INSIDERS

Prosecutors said Whitman tried to make illegal profit with the help of insiders like Roomy Khan, a former Intel Corp 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 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.