A former CIO and vice president at networking hardware vendor Foundry Networks has been charged with insider trading in conjunction with the company's acquisition in 2008 by Brocade Communications Systems, the US Department of Justice said.
David Riley, who left Brocade in 2009, was arrested yesterday in San Jose, California, the DOJ announced. Also charged is hedge fund adviser Matthew Teeple, who Riley allegedly passed insider information to. Teeple, who allegedly passed the insider information to others, was also arrested yesterday.
The information on Foundry's pending sale to Brocade allegedly earned an investment firm $16 million in profits and enabled the adviser to avoid more than $11 million in losses, the DOJ said.
Riley allegedly provided Teeple with inside information on Brocade's pending acquisition of Foundry on July 16, 2008, five days before the deal was publicly announced, the DOJ said. Teeple then called another investment adviser, who began purchasing Foundry stock and call options while they were still on the phone, the agency alleged.
In addition to the charges against Riley and Teeple, the US District Court for the Southern District of New York unsealed the guilty plea of John Johnson to conspiracy and securities fraud charges in connection with the alleged insider trading scheme. Johnson pleaded guilty to these charges on March 18.
Johnson is an acquaintance of Teeple and received the insider information from him, according to the DOJ.
Riley, 47, of San Jose, is charged with one count of conspiracy to commit securities fraud and three substantive securities fraud counts. The conspiracy count carries a maximum sentence of five years in prison and a fine of $250,000 or twice the gross gain or loss from the offence. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million or twice the gross gain or loss from the offence.
Teeple, 41, of San Clemente, California, is charged with one count of conspiracy to commit securities fraud and three substantive securities fraud counts.
Johnson, 46, of Arvada, Colorado, is charged with one count of conspiracy to commit securities fraud and one substantive securities fraud count.
The US Securities and Exchange Commission has also announced civil charges against Riley, Teeple and Johnson.