Arista Networks Co-Founder Agrees to Pay $1M Penalty in SEC Insider Trading Case
Andy Bechtolsheim, co-founder and chief architect of Arista Networks, agreed to pay a $923,740 penalty to settle an insider trading fraud case, said the SEC in a news release Tuesday. Bechtolsheim, Arista chairman at the time of the cited misconduct, also agreed, "without admitting or denying the allegations in the SEC’s complaint," to be barred from serving as an officer or director of a public company for five years, it said.
Bechtolsheim “misappropriated material nonpublic information” about the impending acquisition of Acacia Communications and used it to trade Acacia securities the day before the announcement of the company's purchase by Cisco Systems, alleged the securities fraud complaint (docket 5:24-cv-01845) Tuesday in U.S. District Court for Northern California in San Jose.
Bechtolsheim of Incline Village, Nevada, was bound by a nondisclosure agreement (NDA) to maintain the confidentiality of information shared between “Tech Company A” and Arista, said the complaint. Though Bechtolsheim and employees of Tech Company A and Arista, including Tech Company A Manager, were bound by the NDA to maintain the confidentiality of information shared between them, they also "had a history, pattern, or practice of sharing confidential information with each other,” alleged the complaint.
Tech Company A and Acacia had confidential discussions about the former’s potential acquisition of Acacia from April 2019 through July 8, 2019, said the complaint. On the morning of July 8, an Acacia representative contacted Tech Company A’s chief financial officer, informed him another company had made an offer to buy Acacia and asked whether Tech Company A would be in a position to submit a competing offer, it said. The CFO discussed the potential impact of such an acquisition with the Company A Manager, who volunteered he could contact Bechtolsheim “confidentially to help them assess the impact of an acquisition of Acacia,” it said.
The two spoke by phone about an hour later to discuss the imminent acquisition and the potential impact on Tech Company A, said the complaint. Bechtolsheim knew “or was reckless in not knowing that the information he learned about Acacia’s impending acquisition was material and nonpublic,” said the complaint; he also knew he had a duty of trust to keep the information confidential “and not trade in Acacia securities based on this information."
Arista’s insider trading policy stated that trading on the basis of material nonpublic information is illegal, and it also prohibited “misuse of any nonpublic information of other companies,” the complaint said. Bechtolsheim received trainings at Arista concerning insider trading and the proper handling of nonpublic information, it said.
“Immediately after speaking with Tech Company A Manager” on July 8, “and minutes before” the stock market closed, Bechtolsheim called a brokerage firm where a relative had an account and arranged to write Acacia “put option contracts” in that account, the complaint said. Bechtolsheim had authority to trade in the relative’s and an associate’s account at the brokerage firm and wrote option contracts on both, it said. The relative and associate weren’t aware of Bechtolsheim’s relevant Acacia trades at the time they were made, the complaint said.
The following day, Acacia and Cisco publicly announced that Cisco had entered into a definitive agreement to buy Acacia. When a representative of the relative’s brokerage firm called Bechtolsheim to discuss the profitable Acacia trades and mentioned the impending Cisco acquisition, Bechtolsheim cited the “rumor” he had heard about Tech Company A buying Acacia, information not publicly known before July 9, the complaint said. Bechtolsheim’s trading of Acacia options generated profits of $415,726 in the relative’s and associate’s accounts, the complaint said.