The SEC charged a California-based hedge fund analyst with
insider trading in advance of a merger of two technology companies based on
nonpublic information he received from his friend who was an executive at one
of the companies.
The SEC also charged the executive and another trader in the $29
million insider trading scheme.
The SEC alleges that the hedge fund analyst of San Clemente,
Calif., 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. The hedge fund analyst’s source was Foundry’s chief
information officer, a friend who he had previously given investment advice. The
hedge fund analyst then caused the San Francisco-based hedge fund advisory firm
where he works to buy Foundry shares in large quantities in the days leading up
to the public announcement, and the hedge funds managed by the firm reaped
millions of dollars in profits when Foundry’s stock value increased upon the
news. The hedge fund analyst also tipped a Denver-based investment professional
who he befriended through a previous working relationship. The investment
professional then made illegal trades based on the nonpublic information.
Foundry’s chief information officer also tipped the hedge fund analyst in
advance of at least two other major announcements by Foundry, and the hedge
fund analyst’s firm traded on the nonpublic information to make profits or
avoid losses.
“[The chief information officer] was entrusted with Foundry’s
most valuable secrets, but betrayed his company and set off an explosive chain
reaction of illegal tips from friend to friend for illicit profits,” said
George S. Canellos, Acting Director of the SEC’s Division of Enforcement.
Sanjay Wadhwa, Senior Associate Director of the SEC’s New York
Regional Office, added, “Company insiders who reveal confidential information
and the traders who trade on it can expect robust scrutiny from the SEC. The
charges against [Foundry’s chief information officer] and [the hedge fund
analyst] are a cautionary tale for those considering insider trading that
should make them think twice.”
For more information, visit SEC Charges California-Based Hedge Fund Analyst and Two Others with Insider Trading.
