IT administrator, friends charged in insider trading scheme

Men accused of profiting $7 million from trading Palo Alto Networks stock

Five friends reaped $7 million from an insider-trading scheme facilitated by an IT administrator at Palo Alto Networks, officials from the Securities and Exchange Commission and the Department of Justice alleged Tuesday.

The regulators and law enforcement officials accused Janardhan Nellore, an IT employee at Santa Clara-based cybersecurity company Palo Alto Networks who was fired earlier this year, of using access to confidential information at his job to make stock trades, and also of passing along information to his friends, Sivannarayana Barama, 45, of Fremont, Ganapathi Kunadharaju, 41, of San Ramon, Saber Hussain, 42, of Santa Clara and Prasad Malempati, 50, of Cupertino. Malempati was also employed in the IT department at Palo Alto Networks from 2013 to 2016, according to the SEC complaint.

All five face civil charges brought by the SEC, and two face criminal charges from the DOJ for the trading scheme that officials say took place from March 2015 to September 2018.

“Nellore and his friends exploited Nellore’s access to valuable earnings information and attempted to hide their misconduct using code words and carefully tailored cash withdrawals,” said Erin E. Schneider, director of the SEC’s San Francisco Regional Office, in a statement.

Nellore, 42, of Santa Clara, and Barama are also facing criminal securities-fraud charges that could result in a maximum of 25 years in prison and a fine of $250,000 if they are convicted. Barama was scheduled to appear Tuesday afternoon in San Jose court.

An attorney for Nellore said he would have no comment. An attorney for Barama said she has no comment yet. Attorneys for Kunadharaju and Malempati said Tuesday that their clients have been cooperating with the SEC. An attorney for Hussain has not returned a request for comment.

A Palo Alto Networks spokeswoman said the company was not charged and is cooperating with authorities. “This issue involved two non-executive level employees and two contractors, who were either terminated or had previously left the company,” she said Tuesday.

After an FBI investigation, the DOJ also charged Nellore with identity theft, saying he used a brokerage account opened by an unnamed individual to trade Palo Alto Networks stock. He could face a minimum two years in prison and $25,000 fine for those charges.

Also, according to the criminal complaint, Nellore bought one-way tickets to New Delhi for him and his family a day after the FBI interviewed him in May. FBI agents stopped him from leaving San Francisco International Airport and he has been detained since.