David Riley, a former chief information officer and vice-president for Foundry Networks was arrested yesterday in San Jose, California, while Matthew Teeple, an analyst for an investment advisory firm to a family of hedge funds located in San Francisco, was arrested in San Clemente.

Both were produced in district courts in California.

"As alleged, when David Riley and Matthew Teeple chose to traffic in inside information involving high-tech companies, they embarked on a high-stakes game that has repeatedly been proved to be unwinnable," the US Attorney Preet Bharara said.

Bharara and the FBI also announced the unsealing of the guilty plea of John Johnson to conspiracy and securities fraud charges in connection with this insider trading scheme. Johnson pleaded guilty to these charges on March 18 before US District Judge John F Keenan.

Riley allegedly provided material, non-public information concerning Foundry, a publicly traded technology company, to Teeple. Teeple then caused others to execute trades based upon the inside information, including in accounts managed by investment adviser A.

In total, these trades earned investment adviser A profits of over $16 million and enabled investment adviser A to avoid losses in excess of USD11 million, the Justice Department said. The US Securities and Exchange Commission (SEC) also announced civil charges against Riley, Teeple and Johnson.

According to the complaint and other court documents, throughout the insider trading scheme, Riley obtained inside information from Foundry and shared it with Teeple.

As the CIO of the networking hardware vendor, Riley had access to monthly and quarterly financial reporting, along with other sensitive, non-public information relating to Foundry, well before such information became public.

After receiving inside information concerning Foundry from Riley, Teeple then shared this information with others, including another analyst who works at Investment Adviser A (the Investment Adviser A Analyst) and others who then traded in Foundry securities. Investment adviser A was an investment adviser for a family of hedge funds.

Riley (47) is charged with one count of conspiracy to commit securities fraud and three substantive securities fraud counts. Teeple (41) is charged with one count of conspiracy to commit securities fraud and three substantive securities fraud counts. Forty-six-year-old Johnson is charged with one count of conspiracy to commit securities fraud and one substantive securities fraud count.

PTI