Former Chief Information Officer of Foundry Networks Sentenced to 78 Months in Prison for Participating in Insider Trading Scheme That Reaped Tens of Millions in Unlawful Gains
Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID RILEY, former Chief Information Officer of Foundry Networks, Inc. (“Foundry”), a California-based technology company that was acquired by Brocade Communications, Inc. (“Brocade”), in 2008, was sentenced today to 78 months in prison for his participation in an insider trading scheme that yielded approximately $39 million in ill-gotten gains. The sentence was imposed by U.S. District Judge Valerie E. Caproni. RILEY was convicted following a 13-day trial in September 2014 in which the jury unanimously concluded that RILEY passed inside information about Foundry’s acquisition by Brocade and about Foundry’s earnings for the first quarter of 2008 to Matthew Teeple, a former analyst for San Francisco-based hedge fund Artis Capital Management, L.P. (“Artis”). Teeple pled guilty to related charges in May 2014 and was sentenced principally to 60 months in prison by U.S. District Judge Robert P. Patterson on October 16, 2014.
Manhattan U.S. Attorney Preet Bharara said: “David Riley took advantage of his insider position at Foundry Networks to funnel sensitive nonpublic financial information to Matthew Teeple. This inside information enabled Teeple’s firm to reap nearly $40 million in illegal profits. This conduct has now earned Riley more than six years in federal prison.”
According to the Superseding Indictment filed February 20, 2014, other court documents, and the evidence presented at trial:
As CIO and a Vice President at Foundry, RILEY had access to monthly and quarterly financial reporting, along with other sensitive, nonpublic information (the “Inside Information”) relating to Foundry, well before such information became public. RILEY provided this Inside Information to Teeple—sometimes by telephone and sometimes during meetings the two arranged in the San Jose, California, area. On several occasions, RILEY spoke with Teeple while logged into the database that Foundry used to maintain sensitive financial information. The Inside Information that RILEY passed to Teeple included quarterly financial performance numbers during the first quarter of 2008 and information regarding Brocade’s intended acquisition of Foundry in July 2008.
Teeple passed the Inside Information he got from RILEY on to others, including others at Artis. From the Inside Information Teeple provided about Foundry, Artis ultimately reaped gains of approximately $39 million.
In addition to the prison sentence he received today, RILEY, 48, of San Jose, California, was ordered to pay a fine of $50,000.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and thanked the Securities and Exchange Commission, which has filed civil charges in a separate action.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Telemachus P. Kasulis and Sarah E. McCallum, and Special Assistant U.S. Attorney Michael P. Holland, are in charge of the prosecution.