With the help of “sophisticated data analysis” the US Securities and Exchange Commission (SEC) said it was able to break up an insider trading ring that generated nearly $1.7 million in illegal gains by trading on the confidential earnings information of Silicon Valley tech companies Infinera Corporation and Fortinet Inc.
According to the SEC’s complaint, Nathaniel Brown, who was the revenue recognition manager for San Jose, California-based telecommunications equipment company Infinera Corporation, repeatedly provided information about the company’s quarterly earnings and financial performance before they were made public to his best friend, Benjamin Wylam, a high school teacher and bookmaker.
The SEC alleges Wylam traded on the tips and also passed the information on to Naveen Sood, who owed Wylam a six-figure gambling debt. Sood allegedly also traded on the information and tipped his friends Marcus Bannon, Matthew Rauch, and Naresh Ramaiya, each of whom also illegally traded on the information, according to the complaint.
For example, after allegedly receiving material nonpublic information from Brown that Infinera’s upcoming second quarter announcement would be negative, Wylam built a large short position on the stock. Between July 11 and July 27, 2016, Wylam sold the 6,500 Infinera shares that he owned, shorted 17,900 Infinera shares, and purchased nearly 4,000 Infinera put option contracts. In total, Wylam spent $326,000 accumulating a short position before Infinera’s negative second quarter announcement.
The regulator also alleges Bannon provided Sood with material, nonpublic information about cybersecurity company Fortinet Inc., where he worked. The SEC alleges that in early October 2016, Bannon learned that Fortinet was going to unexpectedly announce preliminary financial results that were negative. Bannon allegedly tipped this information to Sood, who used it to trade on, and who then passed on the information to Wylam and Ramaiya, who also traded on the information.
Without admitting to or denying the allegations in the complaint, Bannon, Rauch, and Ramaiya consented to the entry of final judgments. Bannon agreed to pay a civil penalty of over $280,000; Rauch agreed to pay a civil penalty of over $128,000; and Ramaiya agreed to pay a civil penalty of nearly $66,000. Sood also consented to the entry of a final judgment and agreed to pay a civil penalty of more than $178,000. Wylam has consented to a permanent injunction with civil penalties, if any, to be decided later by the court. The SEC said its litigation against Brown is ongoing.
“Using sophisticated data analysis, the SEC was able to uncover this insider trading ring and hold each of its participants accountable to ensure the integrity of our markets,” Joseph Sansone, chief of the SEC Enforcement Division’s Market Abuse Unit, said in a statement.
The US Attorney’s Office for the Northern District of California, in a parallel investigation, filed related criminal charges against Brown, Wylam, and Sood.