The former CIO of Foundry Networks, David Riley, is one of a trio of men facing insider trading charges related to the vendor's $2.6bn (£1.75bn) acquisition by Brocade in 2008.
The US Securities and Exchange Commission (SEC) believes Riley tipped off a pair of friends who worked as investment professionals days before the Brocade deal was announced in July 2008.
Californian Matthew Teeple is alleged to have then bought shares through the San Francisco hedge fund where he works. These swiftly realised a profit of millions of dollars once the buyout became public knowledge and Foundry's share price shot up 32 per cent.
Teeple was then given insider information relating to a number of developments before the deal finally closed in December, the SEC alleges. Riley is also accused of giving Teeple the nod "in advance of at least two other major announcements by Foundry". The investor reportedly used this information "to make profits or avoid losses" at his firm.
Denver-based investment officer John Johnson was also tipped off by Riley prior to the Brocade announcement, according to the SEC. The total worth of the alleged scams has been pegged at $29m.
George Canellos, acting director of the SEC's Division of Enforcement, said: "David Riley was entrusted with Foundry's most valuable secrets, but betrayed his company and set off an explosive chain reaction of illegal tips from friend to friend for illicit profits."
If the trio are found guilty, they are liable to be ordered to "disgorge their ill-gotten gains", as well as paying penalty fines and, in Riley's case, be banned from serving as a director or officer of a public company. All three men are also facing criminal charges filed by the US Attorney's Office for the Southern District of New York.
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