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Ex-Foundry executive gets 6-1/2 years prison for insider trading

David Riley, former chief information officer of Foundry Network, exits the U.S. District Court house in New YorkDavid Riley, former chief information officer of Foundry Network, exits the U.S. District Court house in New York
David Riley, former chief information officer of Foundry NetworkPhotograph by Brendan McDermid — Reuters

A former executive of Foundry Networks was sentenced to 6-1/2 years in prison on Monday for leaking inside information about the data-equipment maker to a hedge fund analyst.

David Riley, Foundry’s former chief information officer, was also fined $50,000 by U.S. District Judge Valerie Caproni, who said the case should demonstrate the risks that from engaging in insider trading.

“The word has to be out in the business community that the results if you do get caught are catastrophic,” she said.

Riley, 49, was convicted in October in the most recent in a wave of insider trading cases in federal court in Manhattan to go to trial. He told the judge at Monday’s hearing in Manhattan that he continues to believe he is not guilty.

“I never intentionally or knowingly breached my fiduciary duties or broke the law,” he said.

Prosecutors said Riley in 2008 tipped an analyst at Artis Capital Management about the unannounced plan for Brocade Communications Systems (BRCD) to acquire Foundry for $3 billion.

That tip to Matthew Teeple, along with prior tips about sales figures at Foundry that Riley allegedly supplied his friend, enabled the San Francisco-based hedge fund to earn $39 million, prosecutors said.

A jury found Riley guilty in October on conspiracy and securities fraud charges. Teeple, 44, was sentenced later that month to five years in prison after pleading guilty to conspiracy to engage in securities fraud.

Both men are among the more than 80 people who were convicted amid an insider trading crackdown pursued since 2009 under Manhattan U.S. Attorney Preet Bharara.

The validity of some of those convictions was called into question in December when the 2nd U.S. Circuit Court of Appeals limited the ability of prosecutors to pursue insider trading cases.

The court, in reversing the convictions of hedge fund managers Todd Newman and Anthony Chiasson, ruled that prosecutors must prove a trader knew a tip’s source received a benefit “of some consequence” in exchange.

Riley’s lawyer, John Kaley, indicated in court Monday that the 2nd Circuit ruling would form the basis for his client’s own appeal.

Riley previously urged Caproni to toss his conviction on the grounds that she had instructed jurors they could find him guilty if he provided information to maintain or further a friendship.

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