Ex-Foundry Networks executive found guilty of insider trading

2014-10-10

NEW YORK (Reuters)桝 former executive of Foundry Networks Inc. was found guilty on Thursday [Oct. 2] of leaking inside information about the data-equipment maker and enabling a San Francisco hedge fund to earn millions of dollars.
David Riley, Foundry's former chief information officer, was found guilty by a Manhattan federal jury of two counts of securities fraud and one conspiracy count, after a trial that lasted more than three weeks. A mistrial was declared on a fourth fraud count on which jurors deadlocked.

The verdict brought to 83 the number of people who have been convicted at trial or pleaded guilty since October 2009 amid a years-long campaign against insider trading by the office of Manhattan U.S. Attorney Preet Bharara.

It marked a rebound for Bharara's office, after its insider-trading trial winning streak was broken in July with the acquittal of Rengan Rajaratnam, a younger brother of convicted Galleon Group hedge fund founder Raj Rajaratnam.

Bharara in a statement said Riley forged "a pipeline of material, nonpublic information that enabled others to engage in illegal insider trading."

"What Riley got out of the arrangement is a felony conviction and the prospect of losing his liberty."

John Kaley, a lawyer for Riley, said he continued to believe his client was innocent.

"We're enormously disappointed in the verdict, but we're optimistic about our chances on appeal," he said.

Riley, 48, was charged in 2013 along with Matthew Teeple, a former analyst from hedge fund Artis Capital Management.

Prosecutors said Riley in July 2008 met with Teeple and told him about the unannounced plan for Brocade Communications Systems Inc. to acquire Foundry for $3 billion.

The tip allowed Artis to make $20 million, prosecutors said.

Other tips to Teeple about Foundry's sales ahead of its quarterly reports began as early as September 2007, prosecutors said, including one in April 2008 that was the subject of a fraud count.

Prosecutors had also accused Riley of tipping Teeple in October 2008 about troubles in the Brocade merger. Jurors sent a note Thursday saying they were "hopelessly deadlocked" on the fraud count for that alleged tip.

Teeple pleaded guilty in May to conspiracy to commit securities fraud, but he pleaded guilty without an agreement to cooperate against Riley.

Government witnesses instead included people who said Teeple told them about the Brocade deal but who could not testify to knowing Riley was the source.

Witnesses included John Johnson, a former chief investment officer of the Wyoming Retirement Systems who testified that, before taking that job, he traded in Foundry stock after Teeple told him about the deal.

Prosecutors also called Karl Motey, a technology consultant who has long been a key government witness in insider trading cases, who testified Teeple told him about the merger.

Johnson pleaded guilty in March 2013 to conspiracy and securities fraud charges and awaits sentencing. Motey was sentenced in February 2013 to a year of supervised release after pleading guilty to conspiracy and securities fraud.

The case is U.S. v. Riley, case No. 13-cr-00339, in U.S. District Court for the Southern District of New York.

By Nate Raymond