* Tips said to be leaked on Brocade takeover of Foundry
* Dozens charged in insider trading probe
By Bernard Vaughan
NEW YORK, March 26 Federal prosecutors announced
criminal charges on Tuesday against three new defendants in the
government's broad-based insider trading probe.
Authorities said David Riley, a former chief information
officer at Foundry Networks Inc, leaked tips about the company's
pending $3 billion takeover in 2008 by Brocade Communications
Systems Inc, to hedge fund analyst Matthew Teeple.
The government said Teeple then tipped others, resulting in
trades that led to more than $27 million in profits and avoided
Teeple was an analyst at Artis Capital Management, a San
Francisco-based hedge fund launched in 2001 that invests mainly
in public technology companies, according to people familiar
with the matter.
"Artis has been cooperating fully with the government's
investigation into this matter and has been advised by the U.S.
Attorney's Office that the firm is a witness in the
investigation," Bill McBride, a spokesman for the firm, wrote in
Prosecutors said Teeple had also leaked information to Karl
Motey, a California technology consultant who has pleaded guilty
in the probe and been cooperating with prosecutors, the
Riley, 47, and Teeple, 41, were each charged with three
counts of securities fraud and one count of conspiracy, U.S.
Attorney Preet Bharara in Manhattan said. They face up to 20
years in prison on each securities fraud count.
A third defendant, John Johnson, 46, pleaded guilty to one
count each of securities fraud and conspiracy, Bharara said.
Johnson is the chief investment officer of the Wyoming
Retirement System, which he joined as a senior investment
officer in 2010, after the allegations in the complaint. The
pension on Tuesday relieved him of all his investment and
administrative responsibilities pending further review,
according to Tom Williams, executive director.
Johnson had had various contacts with Teeple since 2005,
when Johnson worked at a mutual fund, and made more than
$136,000 on trades based on information about the Foundry
takeover leaked to him by Teeple, prosecutors said.
Johnson told Williams about the charges Tuesday afternoon,
"To the extent that these charges are true, we're very
disappointed," Williams said.
All three defendants were also charged in separate U.S.
Securities and Exchange Commission civil proceedings.
"When David Riley and Matthew Teeple chose to traffic in
inside information involving high-tech companies, they embarked
on a high-stakes game that has repeatedly proven to be
unwinnable," Bharara said in a statement.
Nathan Hochman, a lawyer for Teeple, said his client intends
to defend himself against the charges.
John Kaley, a lawyer for Riley, did not immediately respond
to requests for comment. Joshua Franklin, a lawyer for Johnson,
declined to comment.
Riley and Teeple were arrested on Tuesday morning in
California and were expected to appear later in the day in
different federal courts in that state.
ARTIS INVESTED IN YOUTUBE
The arrests are the latest in a widespread government
crackdown on insider trading in recent years.
Since October 2009, the Manhattan U.S. Attorney's Office has
charged at least 80 people, of whom at least 72 have been
convicted or pleaded guilty.
Launched in 2001 by Stuart Peterson, Artis is known for
having co-invested alongside Sequoia Capital in an $8 million
round of financing in video-sharing website YouTube, before it
was sold to Google Inc for $1.65 billion in 2006.
Artis is not named in court papers made public on Tuesday
about the latest criminal charges.
Motey avoided prison time at his sentencing in February, at
which a federal judge called him "a particularly impressive
cooperator." He was ordered to submit $40,000 and serve a year
of supervised release for conspiracy and securities fraud.
Motey kept a notebook "he often used to memorialize
conversations he had with various individuals, including
Teeple," the complaint states. Motey told investigators that a
July 18, 2008, entry summarized a conversation in which Teeple
explained that the Foundry acquisition might happen at $2.9
billion, according to the complaint.
Teeple also provided information about Palm Inc to Motey and
Riley in exchange for the inside information on Foundry,
according to the complaint.
In a June 15, 2009 telephone call that Motey recorded,
Teeple said his firm owned "like 12 million shares" of the
device maker, and that it was "gonna be a monster for a while."
When Motey asked Teeple where in Palm his contacts were, he
said "one guy is in dev and then, one guy is kind
of a, senior marketing guy," according to the complaint.
The cases are U.S. v. Riley et al, U.S. District Court,
Southern District of New York, No. 13-mag-00806; U.S. v. Johnson
in the same court; and SEC v. Teeple et al in the same court,