U.S. prosecutors try for rebound at insider trading trial
By Nate Raymond NEW YORK (Reuters) - U.S. prosecutors in New York revived their five-year crackdown against insider trading on Monday, taking a former executive at data equipment maker Foundry Networks Inc to trial two months after suffering their first jury defeat in a separate case. Jury selection began in the case of David Riley, a former Foundry executive who prosecutors say supplied an unlawful tip about the company's 2008 takeover by Brocade Communications Systems Inc that enabled a San Francisco hedge fund to make $27 million in profits and avoid losses. Manhattan U.S. Attorney Preet Bharara has made an aggressive push against insider trading. His office has secured convictions of 81 people since October 2009. Riley's trial is the first for Bharara's office since the July acquittal of Rengan Rajaratnam, a younger brother of convicted Galleon Group hedge fund founder Raj Rajaratnam. Riley, 48, was charged in 2013 along with Matthew Teeple, a former analyst from hedge fund Artis Capital Management, whom he allegedly tipped about the $3 billion acquisition of Foundry by Brocade. Ahead of trial, Teeple, 43, pleaded guilty in May to conspiracy to commit securities fraud, without an agreement to cooperate against Riley. Riley's attorney, John Kaley, said in court on Friday that soon after Teeple's plea, prosecutors suggested his client plead guilty to a conspiracy charge, which would allow him to argue for no prison time. Riley declined, and denies tipping Teeple. "Our position is he didn't get any information from Mr. Riley," Kaley said. Prosecutors are expected to call as their first witness John Johnson, a former fund manager at a client of a former employer of Teeple who prosecutors said earned $136,000 trading on information the analyst gave him about the merger. Prosecutors are also expected to call Karl Motey, a key government witness who, according to his lawyers, recorded more than 400 conservations with more than 50 targets of Bharara's insider trading probe. Among these are conversations with Teeple, who prosecutors said provided stock tips to Riley in exchange for information about Foundry. Johnson, 48, pleaded guilty in March 2013 to conspiracy and securities fraud charges. Motey, 50, was sentenced in February 2013 to a year of supervised release after pleading guilty to conspiracy and securities fraud. Kaley, Riley's attorney, has indicated in pretrial court hearings that he may seek to introduce evidence that Riley is a former CIA agent to establish his client's ability to keep secrets. The case is U.S. v. Riley, U.S. District Court, Southern District of New York, No. 13-cr-00339. (Reporting by Nate Raymond; Editing by David Ingram and Jonathan Oatis)
