Silicon Valley Friends Charged in Insider-Trading Ring
Six face criminal and civil charges over trading in shares of Infinera and Fortinet
Authorities on Tuesday charged a group of six friends in Silicon Valley with insider trading, alleging they shared unlawful stock tips and traded on the information to earn about $1.7 million.
The San Francisco U.S. attorney’s office charged three of the individuals in federal criminal court, including Nathaniel A. Brown, a former senior revenue manager at computer-networking company Infinera Corp. INFN -2.11% Mr. Brown allegedly tipped off a friend, Benjamin Wylam, about Infinera’s undisclosed quarterly results from April 2016 through November 2017, according to the Securities and Exchange Commission, which said it uncovered the scheme and separately alleged the six defendants committed civil fraud.
The SEC said Mr. Wylam is a Santa Clara, Calif., high-school teacher who worked as a bookmaker on the side. He communicated about stocks with Mr. Brown using WhatsApp, an encrypted text-messaging application, the SEC said. Mr. Wylam made over $1 million in illicit profit, according to the SEC’s lawsuit, which said he wrote on an internet message board that “insider trading is part of my investment strategy.”
Mr. Wylam has agreed to plead guilty to criminal securities fraud, according to court records. He also agreed to resolve the SEC’s civil allegations and pay a fine that a court will set later. Mr. Brown is litigating with the SEC, the agency said, without providing more information.
The tipping chain involved other individuals, authorities said. Mr. Wylam passed his illicit scoops about Infinera to Naveen Sood, who owed him a gambling debt of more than $100,000, according to the SEC. Mr. Sood then shared the information with three other friends—Naresh Ramaiya, Marcus Bannon and Matthew Rauch—who also traded on the material nonpublic information, according to the SEC.
Mr. Sood, 49 years old, pleaded guilty to one count of criminal securities fraud, according to court records. He faces a maximum prison term of 25 years and a fine of as much as $250,000 or twice the gains from his illegal trading, whichever is greater, according to his plea agreement.
The SEC said it discovered the alleged trading ring using sophisticated data analysis. Regulators have developed data-mining tools in recent years that allow them to hunt for evidence of trader groups making suspiciously well-timed trades.
The alleged scheme also involved illicit trading in shares of another company, cybersecurity vendor Fortinet Inc. FTNT -0.60% Mr. Bannon worked at Fortinet in sales and told Mr. Sood in October 2016 about a negative announcement his employer planned to make in the coming days, authorities said. Mr. Sood used the information to buy options that would pay off if Fortinet’s stock price fell, and shared the tip with Messrs. Wylam and Ramaiya, the SEC’s lawsuit alleges.
Lawyers for Messrs. Bannon and Rauch declined to comment. Spokespeople for Infinera and Fortinet and lawyers for the other defendants didn’t immediately respond to requests for comment.
Messrs. Bannon and Rauch were college roommates in the 1990s and were also friends with Mr. Sood, according to the SEC. Mr. Bannon invoked his Fifth Amendment right against self-incrimination when the SEC subpoenaed him for testimony, the agency said in its lawsuit.
Messrs. Bannon, Rauch and Ramaiya agreed to settle the SEC’s claims and pay fines totaling $476,000, according to court records. They don’t face criminal charges.
Mr. Brown, 49 years old, was charged under a document that prosecutors typically use when a defendant is prepared to plead guilty. He faces the same maximum statutory penalties as Mr. Sood. He is due to be arraigned on June 16, according to prosecutors.