SEC names key figure in Akamai case
Ex-marketing chief accused in court filing
More than a year after Akamai Technologies Inc. of Cambridge became entangled in a massive insider-trading case, the federal government has identified the Akamai executive who allegedly revealed company secrets to hedge fund traders.
In papers filed last week in US District Court in New York, the Securities and Exchange Commission said that Kieran Taylor, Akamai’s former senior director of product marketing, provided the information to the Galleon Group LLC.
Galleon’s cofounder, Raj Rajaratnam, was one of six people arrested and charged in October 2009 in connection with making $25 million from illegal trades in stocks of several companies, including Akamai. In November 2009, Steven Fortuna, a Westwood hedge fund manager allied with Galleon, pleaded guilty in Manhattan federal court to illegally trading Akamai shares, based on insider information from Taylor, then an unnamed source inside the company.
“Mr. Taylor is no longer employed by Akamai,’’ said Akamai spokesman Jeff Young, “and we don’t publicly discuss personnel matters.’’ Efforts to contact Taylor and his lawyer were unsuccessful.
With a network of 80,000 servers in 70 countries, Akamai manages Internet traffic for businesses around the world. The company says it handles between 15 and 30 percent of all Web traffic.
Anthony Buono, director of the Alliance for Ethics and Social Responsibility at Bentley University, said that insider trading “happens a lot more than we like to think,’’ but he expressed surprise that a high-ranking executive might be involved. “A lot of people at that level take significant pride in their reputation,’’ said Buono.
Rajaratnam and his colleagues are charged with assembling a network of informants at a host of technology companies, and using their insider tips to make illegal trading profits. The investigation began in late 2007 and featured wiretaps on traders’ phones.
Federal prosecutors said Taylor was a family friend of Danielle Chiesi, a portfolio manager at hedge fund New Castle Funds LLC. Allegedly, Taylor informed Chiesi in advance that Akamai’s second quarter 2008 earnings would fall short of expectations. Chiesi allegedly shared that information with Rajaratnam, Fortuna, and others involved in the scheme.
The traders profited from the information by short-selling Akamai stock — selling shares that have been borrowed from another trader. If the stock falls in price, the trader can buy back the shares at the new, lower price and give them back to the lender, but keep the profit made by selling the stock at its earlier, higher price.
The traders also allegedly bought put options in Akamai stock, giving them the right to sell stock at a fixed price. After Akamai’s stock price fell, Rajaratnam could sell his shares at the old, higher price.
Put options and short-selling are common practices, but are illegal if based on insider information.
Prosecutors allege that New Castle and Fortuna’s firm, S2 Capital LLC, each made a profit of $2.4 million by illegally trading on the Akamai inside information, while Galleon made $3.5 million.
In another case that grew out of the Galleon probe, Bob Nguyen, a former analyst for expert-networking firm Primary Global Research LLC, pleaded guilty yesterday in Manhattan federal court, admitting he was part of a scheme at his firm to provide hedge fund clients with material, nonpublic information.
And the lawyer representing Winifred Jiau, one of at least four former Primary Global Research LLC consultants charged in the probe, said she intends to plead not guilty.
Jiau, who is in custody in Dublin, Calif., after a judge said she was a flight risk, was arrested on Dec. 28 and accused of selling information about Nvidia Corp. and Marvell Technology Group Ltd. to portfolio managers at three unidentified hedge funds through Primary Global, according to a Manhattan federal court filing.
Material from Bloomberg News was used in this report. Hiawatha Bray can be reached at firstname.lastname@example.org.