U.S. SEC charges former Palo Alto Networks IT administrator, others with insider trading

WASHINGTON (Reuters) - U.S. authorities on Tuesday said they have charged a former IT administrator and four friends involved in a years-long insider trading ring, in which they used confidential information about a Silicon Valley cloud-computing company to reap millions.

The U.S. Securities and Exchange Commission charged Janardhan Nellore, a former employee of cybersecurity firm Palo Alto Networks Inc PANW.N, with allegedly using his high level of access to the company's database to obtain confidential information ahead of earnings. Nellore led a group of friends - Sivannarayana Barama, Ganapathi Kunadharaju, Saber Hussain and Prasad Malempati - in using that information to trade the company's securities, authorities said in a court document.

The traders made over $7 million in illegal trading profits at the height of their scheme in 2017. The activity allegedly began in 2015 and continued through 2018, the SEC said. The defendants referred to Palo Alto Networks as “baby” in texts and emails and some kicked back profits to the ring leader in cash transactions to try to evade detection.

“This case highlights our use of enhanced data analysis tools to spot suspicious trading patterns and identify the traders behind them,” Erin E. Schneider, director of the SEC’s San Francisco Regional Office, said in a statement.

Palo Alto Networks terminated Nellore’s employment earlier this year. He was arrested in May at the airport after having purchased one-way tickets to India for himself and his family, the SEC said.

The U.S. Attorney’s Office for the Northern District of California separately announced criminal charges against Nellore and Barama. Neither could be reached for comment.

Counsel for Hussain did not respond immediately to calls for comment. Kunadharaju’s lawyer said he has been fully cooperating with the SEC.

“We’re optimistic about the outcome,” Kunadharaju’s counsel said.

A lawyer for Malempati said in an emailed statement: “I would suggest that the fact that Mr. Nellore is in custody and has been since May and Mr. Malempati is not in custody tells you a great deal with respect to who was aware that he was relying on non-public inside information and who was not aware of it.”

Reporting by Chris Prentice; Editing by Dan Grebler