Ex-Foundry executive loses U.S. insider trading appeal

NEW YORK (Reuters) - A U.S. appeals court on Thursday rejected the appeal of a former executive of Foundry Networks Inc who was sentenced to 6-1/2 years in prison after being convicted for leaking inside information about the company to a hedge fund analyst.

David Riley, former chief information officer of Foundry Network, exits the U.S. District Court house in New York October 1, 2014. REUTERS/Brendan McDermid

David Riley, Foundry’s former chief information officer, had argued his conviction should be reversed in light of a major appellate court ruling that limited the scope of insider trading laws.

But a three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York said Riley “mistakenly” relied on the December 2014 decision to challenge the sufficiency of the evidence against him.

A lawyer for Riley did not immediately respond to requests for comment.

Thursday’s decision marked a victory for Manhattan U.S. Attorney Preet Bharara, whose office had suffered a series of setbacks in its crackdown down on insider trading following the previous appellate ruling. That ruling was from three other judges on the 2nd Circuit.

Of the 96 people charged under Bharara’s watch for insider trading since 2009, 14 have escaped charges thanks to that decision, which held that prosecutors must prove that a trader knew a tip’s source received something in exchange.

The court, in reversing the convictions of hedge fund managers Todd Newman and Anthony Chiasson, also narrowly defined what constituted a benefit to the tipper by saying it could not be just be a friendship but had to be of “some consequence.”

Riley, 49, was found guilty of conspiracy and securities fraud charges in October 2014 and subsequently sentenced by U.S. District Judge Valerie Caproni to 6-1/2 years in prison.

Prosecutors said Riley in 2008 tipped an analyst at hedge fund Artis Capital Management about the unannounced plan for Brocade Communications Systems Inc to acquire Foundry for $3 billion.

That tip to Matthew Teeple, along with prior tips about sales figures at Foundry that Riley allegedly supplied his friend, enabled the San Francisco-based hedge fund to earn $39 million, prosecutors said.

Teeple, 44, was sentenced in 2014 to five years in prison after pleading guilty to conspiracy to engage in securities fraud.

On appeal, Riley argued in part that prosecutors failed to prove he received anything that could constitute an illegal benefit from Teeple as defined by the 2014 appellate ruling.

But the three-judge panel said evidence showed Riley received investment advice from Teeple.

“Such professional advice would constitute a benefit whether or not Riley used or profited from it,” the panel wrote. “Riley, however, did both.”

The case is U.S. v. Riley, 2nd U.S. Circuit Court of Appeals, No. 15-1541.

Reporting by Nate Raymond in New York; Editing by Chizu Nomiyama and Dan Grebler