Thursday, March 28, 2013 8:16:42 AM
Public Fund CIO Pleads Guilty in Insider Trading Scheme
John Johnson has pleaded guilty to three counts of securities fraud predating his tenure at Wyoming’s pension fund. Each carry a maximum sentence of 20 years in prison.
(March 28, 2013) - A man who on Monday ran $6.5 billion has lost his position over insider trading gains of $136,000.
The chief investment officer to the Wyoming Retirement System (WRS) has pleaded guilty to securities fraud and conspiracy in connection with an insider trading scheme, and will not regain his leadership of the $6.5 billion fund, according to its executive director.
The US Securities and Exchange Commission (SEC) and the Southern District of New York have separately charged John Johnson with illegal trading activities that occurred in 2008—two years before Johnson joined the WRS as a senior investment officer.
Johnson has pleaded guilty to all four criminal counts levied by the US district attorney's office, according to a joint statement from the Federal Bureau of Investigation (FBI) and Manhattan US Attorney. The SEC's civil charges of insider trading were filed on Tuesday, March 26.
He faces a maximum of five years in prison and a fine of $272,000 for the district court's charge of conspiracy to commit securities fraud, and a maximum 20 years in prison and $5 million fine for each of its three substantive securities fraud charges against him.
According to SEC documents, a business acquaintance of Johnson's named in the suits as Matthew Teeple informed Johnson in advance of the public announcement that technology company Foundry Networks was to be acquired by Brocade, a Delaware-based data and networking product provider. Teeple was allegedly tipped off by David Riley, Foundry's former chief information officer, who has also been charged by both the district attorney and the federal regulator.
Teeple and Riley have had no interaction with WRS—personal or professional—and the fund has never had a business interaction with any firm named in the lawsuits, according to multiple independent sources.
Johnson has been placed on administrative review leave by the WRS, as the fund's board and executives absorb what has happened and gather information.
"We didn't want to engage in any hasty decision making," WRS Executive Director Thomas Williams told aiCIO on Wednesday evening. "This has happened so incredibly quickly. We want to make sure we have all of the available information before proceeding. All options for John's future at the fund are really on the table—Except, the one thing that is not an option is for John to continue in his capacity as CIO."
Johnson has not resigned from the post he has held for the past year-and-half. "And we have not requested him to," Williams noted.
Neither Teeple nor Riley has pleaded guilty to the charges. Both were arrested in California Tuesday morning, according to the Manhattan district attorney's office. Teeple's attorney told aiCIO, "Mr Teeple intends to vigorously defend himself against the government's allegations." Lawyers for Riley and Johnson did not respond for requests for comment by press time.
The SEC's complaint alleges that Johnson called Teeple on the morning of Friday, July 18, 2008, and was told the nonpublic information regarding Foundry's imminent takeover. "Before this telephone call ended," the complaint claims, "Johnson purchased 3,900 Foundry shares in six separate family brokerage accounts that he controlled and 325 Foundry call option contracts in his personal trading account. A few minutes after his telephone call with Teeple ended, Johnson also sold short 1,200 Brocade shares based on the commonly held view that an acquiring company's share price often decreases following a merger announcement."
Three days later, with Foundry's stock up 32%, Johnson allegedly sold his holdings and covered his short position on Brocade.
The SEC estimated he earned about $136,000 on the trades.
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