U.S. judge upholds insider trading conviction despite law change

Reuters News
|
Posted: Mar 04, 2015 3:00 PM

By Jonathan Stempel

NEW YORK (Reuters) - A federal judge let stand the insider trading conviction of former Foundry Networks Inc executive David Riley, rejecting his argument that a recent appeals court decision setting a higher bar for convictions warranted his acquittal.

While acknowledging that her jury instructions would have been different, U.S. District Judge Valerie Caproni in Manhattan said in a decision late on Tuesday that evidence introduced at trial "left no reasonable doubt of Riley's guilt."

Jurors found the former Foundry chief information officer guilty last Oct. 2 of two counts of securities fraud and one count of conspiracy, for leaking tips in 2007 about the computer equipment company's financial results, and in 2008 about Brocade Communications Systems Inc's plan to buy the company.

Riley faces up to 20 years in prison on each fraud count at his scheduled April 27 sentencing.

His lawyer, John Kaley, did not immediately respond on Wednesday to requests for comment.

Riley is one of more than 80 people who were convicted of or pleaded guilty to insider trading charges brought since 2009 by U.S. Attorney Preet Bharara in Manhattan.

The validity of some of those convictions and pleas was called into question in December when the 2nd U.S. Circuit Court of Appeals overturned the convictions of hedge fund managers Todd Newman and Anthony Chiasson.

That court said defendants, to be convicted, needed to know that technology company insiders who passed confidential tips did so in exchange for a personal benefit "of some consequence."

The government claimed that Riley passed tips about Foundry to his friend Matthew Teeple, a former analyst from hedge fund Artis Capital Management, and that Teeple and others made millions of dollars trading on the tips.

Riley said Caproni's jury instructions were defective, in light of the later 2nd Circuit decision, because they suggested he could obtain a personal benefit by leaking information for the purpose of "maintaining or furthering a friendship."

Caproni, though, said Riley obtained at least three "concrete" personal benefits: contacts for a side business he was developing, investment advice, and help securing a new job.

"The evidence was more than sufficient to support the jury's conclusion that Riley tipped inside information in anticipation of receiving a personal benefit," Caproni wrote.

Teeple pleaded guilty in the case and was sentenced last Oct. 16 to five years in prison.

The case is U.S. v. Riley, U.S. District Court, Southern District of New York, No. 13-cr-00339.

(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)