Artis Capital Management, a San Francisco-based hedge fund that invests mainly in public technology companies, and its former investment analyst, have settled charges with the U.S. Securities and Exchange Commission (SEC) related to an insider trading scheme that yielded tens of millions of dollars in ill-gotten gains.
Matthew G. Teeple, a senior analyst at Artis Capital Management, pleaded guilty earlier in May to spreading secrets and repeatedly gathering and passing to Artis inside information that caused more than $30 million in illicit profits and earned him hefty bonuses.
Artis was also charged with failure to maintain adequate policies and procedures to prevent insider trading at the firm. More specifically, the prosecutors had alleged that Artis Capital and one of its supervisor failed to respond appropriately to red flags that should have alerted them to the misconduct.
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Launched in 2001, Artis is well known for having co-invested in an $8 million round for financing YouTube, before it was sold to Google for $1.65 billion in 2006.
Extensive network of insider traders
Teeple worked for Artis Capital Management from 2005 to 2009. During this period, he obtained confidential information about sales of technology firm Foundry Networks Inc. before the information was made public in earnings reports. Further, in July 2008 he learned from David Riley, Foundry’s Chief Information Officer, that his company was about to be sold.
The deal was publicly announced five days later. Within a few minutes, Teeple began calling his network of friends and investment advisers, all of whom began to buy large amounts of Foundry stock in an insider-trading scheme that netted $16 million in profits and prevented another $11 million in potential losses.
As part of its settlement agreement with the SEC, Artis Capital agreed to disgorge the $5,165,862 in illicit profits plus $1,129,222 in interest and a penalty for a total of $2,582,931. In addition, the SEC has fined Teeple’s supervisor Michael W. Harden $130,000 and barred him from participating in the financial industry for 12 months because of his negligence.
Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, said: “Hedge fund advisory firms and supervisors must take all reasonable measures necessary to prevent insider trading, yet Artis Capital and Harden failed to take any action at all in response to Teeple’s highly profitable and suspiciously-timed trading recommendations.”
Joseph G. Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit, added: “By disgorging the illicit profits that Artis Capital obtained through Teeple’s misconduct, this settlement ensures that the firm and Harden will not be rewarded for their negligence.”