In the Courts

On Jan. 14, the United States Court of Appeals for the Second Circuit affirmed the insider trading conviction of former Foundry Networks Inc. (Foundry) executive, David Riley, holding that the trial evidence was sufficient to establish that he received a personal benefit for disclosing nonpublic, material information. United States v. Riley, No. 15'1541'cr (2nd Cir., Jan. 14, 2016) (Riley II). The case sheds more light on the Second Circuit's “personal benefit” requirement in tipper liability cases, following its earlier decision in United States v. Newman, 773 F.3d 438, 450 (2d Cir. 2014), cert. denied, 136 S. Ct. 242 (2015) (Newman).

David Riley was convicted by a federal jury in October 2014 of conspiracy and securities fraud, for leaking confidential information about a pending Foundry acquisition to Matthew Teeple, a former analyst at a San Francisco-based hedge fund, Artis Capital Management LP (Artis). United States v. Riley, No. 1:13-cr-00339 (S.D.N.Y., October 2,2014) (Riley I). Riley allegedly tipped Teeple to Foundry's pending acquisition by Brocade Communications Systems Inc. (Brocade) in 2008, five days before the deal was publically announced. Within two hours of his conversation with Riley, Teeple alerted another analyst at Artis and the leaked information helped the hedge fund profit by more than $16 million and avoid losses of more than $11 million. Id. Riley's request for a new trial was denied by the district court in March 2015 and Riley was sentenced in the next month to six-and-a-half years of imprisonment. Riley I (April 27, 2015) (sentencing).