A San Francisco-based hedge fund advisory firm has agreed to settle U.S. Securities and Exchange Commission charges alleging its failure to notice that one its employees was engaged in insider trading. Artis Capital Management will disgorge the more than $5.1M in illicit rating profits made by employee Matthew G. Teeple for the firm plus over $1.1M of interest. The hedge fund firm will also pay a more than $2.5M penalty.
According to the regulator, Artis Capital did not maintain policies and procedures adequate enough to prevent insider trading from taking place at the firm. The Commission contends that Teeple’s supervisor, Michael W. Harden, did not respond as needed when red flags arose to indicate that Teeple was engaging in wrongful behavior.
To settle the SEC charges against him, Harden will pay a $130K penalty and serve a 1-year suspension from the securities industry. He and Artis Capital consented to the regulator’s order. However, they did not deny or admit to the Commission’s findings.
It was in 2013 that Teeple and his friend David Riley were charged by the SEC with insider trading, along with investment professional John Johnson. The over $29M insider trading scam took place before the merger of two tech companies.
According to the regulator, Foundry Networks chief information officer David Riley tipped Teeple with nonpublic information before the 2008 announcement that the company was going to be acquired by Brocade Communication Systems Inc. for about $3B. Because of the inside information, Teeple caused Artis Capital to purchase Foundry shares prior to the public announcement, causing it to make millions of dollars when the company’s stock value rose in the wake of the news.
Teeple is accused of tipping Johnson, who also made illegal trades as a result. Meantime, Riley tipped Teeple on two other occasions, causing Artis Capital to make money and avoid losing money.
The U.S. Attorney’s Office for the Southern District of New York brought criminal cases against the three men. Teeple was sentenced to five years in prison. Riley was sentenced to 6 ½ years. Johnson was sentenced to supervised release.
The SSEK Partners Group is an institutional investor fraud law firm representing high net worth individual investors and institutional clients.
Read the SEC Order (PDF)
The SEC Release About the Final Judgments in Its Case Against Riley, Johnson, and Teeple, June 12, 2015