On March 26, 2013, the SEC charged a California-based hedge fund analyst, Matthew Teeple, with insider trading in advance of a merger of two technology companies Foundry Networks Inc. and Brocade Communication Systems Inc. Teeple received nonpublic information from his friend, Foundry’s Chief Information Officer David Riley. The SEC also charged Riley and another trader, John Jonson, in this $29 million insider trading scheme.
The SEC alleged that Teeple was tipped in advance of a July 2008 announcement that Foundry Networks Inc. had agreed to be acquired by Brocade Communication Systems Inc. for approximately $3 billion. Teeple then caused the San Francisco-based hedge fund advisory firm where he worked to buy Foundry shares in large quantities in the days leading up to the public announcement. The hedge funds managed by the firm reaped millions of dollars in profits when Foundry’s stock value increased upon the news of the acquisition.
In addition, Teeple tipped Denver-based investment professional John Johnson, who then made illegal trades based on the nonpublic information.
Furthermore, Riley tipped Teeple in advance of at least two other major announcements by Foundry, and Teeple’s firm traded on the nonpublic information to make profits or avoid losses.
In a separate action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Teeple, Riley, and Johnson.
The SEC’s complaint charges Teeple, Riley, and Johnson with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.