On June 15, 2021, The Securities and Exchange Commission (SEC) announced insider trading charges against a Silicon Valley trading ring whose members made almost $1.7 million in illegal profits by trading on private earnings information from two local technology companies.
As stated in the SEC’s complaint, Nathaniel Brown, Infinera Corporation’s revenue recognition manager, routinely tipped his closest friend, Benjamin Wylam, using WhatsApp on the company’s undisclosed quarterly earnings and financial performance from April 2016 to November 2017.
According to the SEC lawsuit, Wylam profited from this knowledge and alerted Naveen Sood, who owed Wylam a six-figure gambling debt. Sood reportedly traded on this knowledge and informed his three pals Marcus Bannon, Matthew Rauch, and Naresh Ramaiya.
Based on the SEC’s litigation, Mr. Wylam gained more than $1 million in illegal profit, claiming on an online forum that “insider trading is part of my investment strategy.”
The SEC’s lawsuit also claims that Bannon provided Sood with important, nonpublic information about Bannon’s company, Fortinet Inc. Bannon discovered in early October 2016 that Fortinet was planning to release preliminary negative revenue numbers.
Apparently, Bannon is said to have passed on this knowledge to Sood, who utilized it for trading. Sood later reportedly notified Wylam and Ramaiya, who also traded, after receiving the information.
Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit, stated:
“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.”
“The Commission considered relevant circumstances, including Bannon’s medical condition, in accepting these defendants’ settlement offers in order to address the concerted misconduct alleged in our complaint, which involved insider trading in the securities of two different companies for more than a year.”
The San Francisco U.S. attorney’s office charged three of the individuals in federal criminal court, Bannon, Rauch, and Ramaiya all accepted the entry of final judgments without admitting or disputing the accusations in the complaint; the three men each agreed to pay a civil penalty based on their involvement.
The final verdicts, which the court must approve, would permanently prohibit Bannon, Rauch, Ramaiya, and Sood from breaching Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
Wylam has agreed to a permanent injunction with civil fines, if any, to be determined by the court later, and the SEC’s legal action against Brown is still ongoing.
Despite severe penalties for criminal securities and civil fraud, the case illustrates that hedging insider trading in the stock market is still prevalent.