The U.S. Securities and Exchange Commission has charged a former executive at a Massachusetts-based technology firm for illegally tipping non-public information about the company’s financial predicament as part of the insider trading scheme operated by now-imprisoned Galleon Management hedge fund founder Raj Rajaratnam.
The SEC alleges that Kieran Taylor, who was the senior director of marketing for Akamai Technologies, illegally tipped hedge fund portfolio manager Danielle Chiesi with confidential information about the company’s plans to lower its revenue guidance for 2008. Chiesi in turn tipped Rajaratnam with the non-public information so they and others could trade ahead of the negative news and make millions of dollars in illegal profits. Taylor also traded on the non-public information by selling 2,500 shares of Akamai stock that he held in a personal brokerage account to avoid losses of $20,635.
Taylor, who now lives in New York City, has agreed to settle the SEC’s charges by paying more than $145,000 and being barred from serving as an officer or director of a public company. The settlement is subject to court approval.
'Here we have yet another senior executive who succumbed to greed and exploited his employer’s confidential information for personal gain when he should have adhered to his duty to protect it', said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office. 'Taylor’s willing misuse of information about Akamai’s financial situation otherwise unknown to the rest of the investing public made him just another cog in the sprawling Rajaratnam insider trading machine'.
The SEC has obtained a record $92.8 million penalty against Rajaratnam.
According to the SEC’s complaint against Taylor filed in federal court in Manhattan, he obtained confidential information in July 2008 from internal company sources indicating that Akamai would fall short of previous revenue projections it made publicly. Akamai was planning to update its revenue guidance for 2008 when it announced its second quarter financial results on July 30. Based on this inside information, Taylor sold his Akamai stock in the days leading up to the announcement. Taylor also tipped Chiesi, a lifelong family friend who was then a portfolio manager at hedge fund advisory firm New Castle Funds. Chiesi then prompted New Castle to short sell Akamai stock.
According to the SEC’s complaint, the inside information leaked by Taylor continued to make its way around the Rajaratnam insider trading circle. Chiesi tipped other hedge fund managers including Rajaratnam with the inside information so Galleon Management and other firms could short Akamai stock. Chiesi called Rajaratnam and relayed what she had learned from Taylor, noting that Akamai was 'going to guide down a lot' at the company’s upcoming quarterly earnings announcement. Chiesi similarly provided Taylor’s Akamai information to another friend, Steven Fortuna of the hedge fund advisory firm S2 Capital. Chiesi, Rajaratnam, and Fortuna collectively shorted hundreds of thousands of shares of Akamai stock based on the non-public information illegally tipped by Taylor. Their hedge funds consequently reaped approximately $10 million in illicit profits.
The SEC charged Rajaratnam and Chiesi with insider trading in October 2009, and Fortuna was charged with insider trading a month later. The SEC has charged a total of 34 firms and individuals in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading by numerous hedge funds as well as traders, investment professionals, and corporate insiders located throughout the country. The insider trading occurred in the securities of more than 15 companies for illicit profits totaling more than $96 million.
The SEC’s complaint charges Taylor with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933. Taylor agreed to pay $20,635 in disgorgement, $4,190.26 in prejudgment interest, and a $120,635 penalty. Without admitting or denying the charges, Taylor also agreed to be barred from serving as an officer or director of a public company for five years, and be permanently enjoined from future violations of these provisions of the federal securities laws.