A San Ramon man and a Pleasanton man were among those arrested Monday on insider trading charges for activities that allegedly saw them generate more than $5 million in illegal profits alongside others involved in the scheme.
San Ramon resident Amit Bhardwaj was arrested Monday morning on seven counts of securities fraud and two counts of wire fraud, along with one count each of conspiracy to commit securities and wire fraud and conspiracy to obstruct justice, according to the U.S. Department of Justice.
Pleasanton resident Srinivasa Kakkera was also arrested Monday morning, on one count of securities fraud and one count of wire fraud, as well as the same conspiracy charges as Bhardwaj, federal prosecutors said.
According to charges filed by the U.S. Securities Exchange Commission, Bhardwaj allegedly used material, nonpublic information he learned as chief information security officer at the San Jose-based company Lumentum Holdings Inc. to tip off friends, including Kakkera, about Lumentum's plans to acquire two other companies. Parallel criminal charges have been filed for each of the SEC's enforcement actions in a New York court.
Ahead of Lumentum's acquisition of Santa Clara-based Coherent Inc., which was announced in early 2021, and of San Jose-based NeoPhotonics, which was announced last November, Bhardwaj allegedly told insiders including Kakkera about the company's plans, leading them to purchase shares in both companies before the information was made public.
Authorities allege Bhardwaj learned of the Coherent acquisition in December 2020, and purchased stocks in the company himself as well as tipped off two friends and a close relative.
One friend, Dhirenkumar Patel, allegedly agreed to give Bhardwaj 50% of profits from trading based on the nonpublic information. Patel, Bhardwaj and his other two associates closed out on their shares in Coherent following the announcement of the acquisition, for a collective profit of nearly $900,000, according to prosecutors.
Authorities allege Bhardwaj learned of confidential discussions at Lumentum to acquire NeoPhotonics in October, and tipped off Kakkera along with two other friends -- Abbas Saeedi of Fremont and Ramesh Chitor -- leading all to trade in NeoPhotonics securities, with Chitor agreeing to split profits with Bhardwaj. When the company's stock price increased following the announcement of its acquisition by Lumentum in November, the four allegedly closed out for approximately $4.3 million in profits.
While Patel and Chitor separately pleaded guilty to charges for their involvement in the scheme, prosecutors allege Bhardwaj, Kakkera and Saeedi allegedly "took steps to obstruct the federal investigation of their conduct" following an FBI interview in March.
On the day of the interviews, Bhardwaj allegedly met with Kakkera, Saeedi and Patel in person on several occasions for conversations about "potential false stories that would conceal their insider trading scheme, as well as creating false documents to buttress lies regarding payments that were, in reality, related to the insider trading scheme," as well as to wipe evidence from Bhardwaj's laptop, prosecutors said.
Bhardwaj, Kakkera, and Saeedi were among the nine defendants arrested in connection with three separate insider trading cases brought on by findings from the SEC's Enforcement Division's Market Abuse Unit's (MAU) Analysis and Detection Center, which monitors for suspicious trading patterns using data analysis.
The SEC reports that all three alleged schemes garnered approximately $6.8 million in total profits for those indicted in the charges announced Monday. Of that, a majority in illicit profits were allegedly the result of Bhardwaj and his associates' trading, which amounts to more than $5.2 million.
"If everyday investors think that the market is rigged at their expense in favor of insiders who abuse their positions, they are not going to invest their hard-earned money in the markets," said Gurbir S. Grewal, director of the SEC's Enforcement Division on Monday. "But as today's actions show, we stand ready to leverage all of our expertise and tools to root out misconduct and to hold bad actors accountable no matter the industry or profession. That's what's required to restore investor trust and confidence."