The Securities and Exchange Commission and the Justice Department simultaneously announced insider trading charges Tuesday against a Silicon Valley trading ring whose members generated nearly $1.7 million in illegal profits and losses avoided by trading on the confidential earnings information of two local technology companies, Infinera Corp. and Fortinet Inc.
According to the SEC’s complaint, Nathaniel Brown, of San Jose, who served as the revenue recognition manager for Infinera Corporation, "repeatedly tipped Infinera’s unannounced quarterly earnings and financial performance to his best friend, Benjamin Wylam, also of San Jose, from April 2016 until Brown left the company in November 2017."
The SEC’s complaint alleges that Wylam, described by the commission as "a bookmaker" and biology teacher at Santa Clara High School, traded on this information and also tipped Naveen Sood, of Campbell, who allegedly owed Wylam a six-figure gambling debt.
Sood traded on this information and tipped three friends, Marcus Bannon, Matthew Rauch, and Naresh Ramaiya, each of whom also illegally traded on the information, according to the SEC.
The office of the U.S. Attorney for the Northern District of California filed securities fraud charges Tuesday against Wylam and Brown in separate criminal cases. In related proceedings, the U.S. Attorney's Office announced that Sood had pleaded guilty to one count of securities fraud for engaging in transactions in Infinera securities after receiving material nonpublic information about the company.
The criminal information filed by the U.S. Attorney against Brown, 49, said, the defendant was a senior revenue Manager in Infinera’s finance organization from 2011 to 2017. From April 2016 through November 2017, Brown allegedly used deceptive or improper means to collect confidential information related to Infinera’s financial performance and financial projections, according to the court document.
"Once in possession of the nonpublic information, Brown allegedly used the messaging service WhatsApp, among other means, to share the information with an individual Brown knew would use it to execute securities transactions in Infinera stock," according to court documents.
The criminal information filed against Wylam, 42, said that that from April 2016 through November 2017, Wylam also used WhatsApp, among other means, to receive confidential information from another individual about Infinera’s financial performance and financial projections.
"Wylam allegedly knew when he received the information that it had been obtained through deceptive or improper means but nevertheless used the information for his own use while executing securities transactions in Infinera stock," according to the U.S. Attorney information. The Wylam information also seeks a money judgment of $999,000, alleging that is the amount that Wylam obtained as a result of the criminal violation.
The SEC’s complaint further alleges that Bannon tipped Sood with material, nonpublic information concerning Bannon’s employer, Fortinet Inc. As alleged in the complaint, Bannon learned in early October 2016 that Fortinet was going to unexpectedly announce preliminary negative financial results.
Bannon allegedly tipped this information to Sood, who used it to trade. After learning the information, Sood allegedly tipped Wylam and Ramaiya, who also traded, according to the SEC statement.
In a document unsealed on Tuesday, it was revealed that Sood, 49, had pleaded guilty on March 31.
Under a plea agreement accepted by U.S. District Judge Edward M. Chen, Sood admitted that he socialized with two individuals, one of whom he knew regularly had access to confidential information about Infinera’s quarterly financial results and financial prospects before that information became available to the public.
In the plea agreement, Sood refers to the individuals as Individual 1, to whom Sood owned a debt in April of 2016 of more than $100,000, and Individual 2, who Sood concluded was an employee of Infinera and was the source of the confidential information.
in the agreement, Sood acknowledged that in the spring of 2016, Individual 1 presented him with what was described as an opportunity to get cash to pay off the $100,000 debt by trading in Infinera stock. Individual 1 divulged that Infinera was going to report lower-than-expected revenues for the quarter.
In addition, Sood admitted that thereafter, Individual 1 regularly provided him with material nonpublic information about Infinera and, over time, the material nonpublic information he received became more detailed.
"For example, in August of 2017, Individual 1 informed Sood via WhatsApp that Infinera was going to report actual revenues of $176.8 million and projected revenues of $188 million for the second quarter and third quarter of 2017, respectively," the U.S. Attorney's Office reported. "Knowing that these figures fell short of Wall Street analysts’ expectations, Sood purchased put options in Infinera prior to its earnings announcement and later sold the options for a profit of $36,455."
In his plea, Sood admitted that he used his own and another person’s brokerage accounts to execute trades based upon material nonpublic information and that he acquired "no less than $215,000 in criminal proceeds" from the violations of the law described in the plea agreement.
Brown, Wylam, and Sood each were charged with one count of securities fraud and face criminal charges in federal court.
If convicted, Brown and Wylam face the same maximum statutory penalties as Sood: 25 years in prison and the greater of either $250,000 or twice the gross gain made from the offense. The court also could order additional terms of supervised release, fines, forfeitures, and restitution.
Using what it called "sophisticated data analysis," the SEC was able to uncover this insider trading ring and hold each of its participants accountable, said Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “The Commission considered relevant circumstances, including Bannon’s medical condition, in accepting these defendants’ settlement offers in order to address the concerted misconduct alleged in our complaint, which involved insider trading in the securities of two different companies for more than a year.”
The next federal court appearance scheduled for Brown is today, June 16, for arraignment and additional proceedings. The next federal court appearance scheduled for Wylam is on June 23. The next federal court appearance scheduled for Sood is September 8.
Assistant U.S. Attorney Kyle Waldinger is prosecuting the criminal case, which was investigated by the FBI, with the assistance of the Securities and Exchange Commission.
The SEC’s complaint charges Brown, Wylam, Sood, Bannon, Rauch, and Ramaiya with violating Section 10(b) of the Securities Exchange Act of 1934.
Bannon, Rauch, and Ramaiya consented to the entry of final judgments without admitting or denying the allegations in the complaint.
Bannon agreed to pay a civil penalty of $281,497, Rauch agreed to pay a civil penalty of $128,230, and Ramaiya agreed to pay a civil penalty of $65,780. Sood also consented to the entry of a final judgment and agreed to pay a civil penalty of $178,320. The final judgments, which require court approval, would permanently enjoin Bannon, Rauch, Ramaiya, and Sood from violating the Securities Exchange Act. Wylam has consented to a permanent injunction with civil penalties, if any, to be decided later by the court. The SEC’s litigation against Brown is continuing.
Infinera is a telecommunications manufacturing company based on San Joses. Fortinet is a network security firm based in Sunnyvale.
That’s all well and good, small potatoes. When is the FTC going to go after congress for insider trading, and billionaire’s like George Soros who wrecking the country?