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 U.S. Department of Justice said.
David Riley, who left Brocade in 2009, was arrested Tuesday in San Jose, California, the DOJ said in a press release. 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 Tuesday.
The information on Foundry's pending sale to Brocade allegedly earned an investment firm US$16 million in profits and enabled the adviser to avoid more than $11 million in losses, the DOJ said.
Riley was unavailable for comment Tuesday.
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 U.S. 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 offense. 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 offense.
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 U.S. Securities and Exchange Commission has also announced civil charges against Riley, Teeple and Johnson.
Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.