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Press Release

Two South Bay Residents Indicted For Securities Fraud Relating To Palo Alto Networks, Inc.

For Immediate Release
U.S. Attorney's Office, Northern District of California
The Insider Trading Scheme Allegedly Generated $7 Million in Illegal Profits

SAN FRANCISCO – A federal grand jury indicted Janardhan Nellore and Sivannarayana Barama with one count of conspiracy to commit securities fraud and six counts of securities fraud, and Nellore with three counts of aggravated identity theft, announced United States Attorney David L. Anderson and Federal Bureau of Investigation, Special Agent in Charge John F. Bennett. 

“As alleged in this indictment, Janardhan Nellore worked in an information technology department and repeatedly used his access to his employer’s confidential information to profit on option trades in his employer’s stock,” said U.S. Attorney Anderson.  “Corporate insiders who abuse their access to inside information for personal gain will face the consequences for their actions, whether they sit in the executive suite or the IT department.  The integrity of our financial markets requires everyone to follow the rules.”

“The defendants unlawfully made millions of dollars by concocting a complex trading scheme using valuable inside information to profit by trading ahead of authorized disclosures to the investing public,” said FBI Special Agent in Charge John F. Bennett.  “By arresting these individuals, we set a clear example that we will not tolerate those who undermine the integrity of the markets and fair trade.”

According to the superseding indictment unsealed today, Nellore, 42, of Santa Clara, Calif., and Barama, 45, of Fremont, Calif., are alleged to have participated in an insider trading scheme in which Nellore traded on and provided Barama and others with confidential, non-public, material, inside information about the financial performance of Palo Alto Networks, Inc. (“PANW”), headquartered in Santa Clara, Calif.  Nellore worked in PANW’s Operations and Support group, an information technology department.  Using his position at PANW, Nellore accessed and obtained material nonpublic information regarding PANW’s quarterly financial performance, including PANW’s target and actual billings, bookings, revenue, and growth rate.  With that inside information, Nellore acted as both a trader and a tipper.  Nellore traded PANW securities using inside information before the company disclosed its financial results to the public.  In a number of “straddle trades,” Nellore placed call and put options before earnings announcements and sold the options after the announcements.   

As alleged in the superseding indictment, Nellore shared the inside information with Barama and others, who Nellore knew would trade PANW securities using the inside information he had provided.  Nellore also sometimes tried to conceal this scheme to defraud by using the brokerage accounts of others.  

According to the superseding indictment, from March 2015 through September 2018, Nellore, Barama, and others placed approximately 800 straddle trades of PANW securities, generating illegal profits in excess of $7 million as a result of the insider trading scheme.  When making non-straddle trades of PANW securities or trading in other stocks, the conspirators lost money. 

Barama was arrested this morning in Fremont and will make his initial appearance in federal court in San Jose today before U.S. Magistrate Judge Virginia K. DeMarchi, where Barama and Nellore will be arraigned on the superseding indictment.       

Nellore was previously detained as a flight risk by United States Magistrate Judge Nathanael M. Cousins, after Nellore was arrested at the San Francisco International Airport with a ticket to leave the United States and without any apparent intention to return.  The FBI interviewed Nellore in connection with this investigation on May 7, 2019.  After the interview, Nellore purchased one-way tickets to New Delhi, India, for himself and his family on an Air India flight departing the very next morning, May 8, 2019, at 11:30 a.m.  FBI agents intercepted Nellore while he was trying to board the flight.  

The indictment charges both Nellore and Barama with one count of conspiracy to commit securities fraud, in violation of 18 U.S.C. § 1349, and six counts of securities fraud and aiding and abetting, in violation of 18 U.S.C. §§ 1348 and 2.  The indictment also charges Nellore with three counts of aggravated identity theft, in violation of 18 U.S.C. § 1028A(a)(1). 

An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.  If convicted of the conspiracy to commit securities fraud charge, both Nellore and Barama face a maximum statutory sentence of 25 years in prison and a fine in the amount of $250,000.  If convicted of the securities fraud charges, both Nellore and Barama face a maximum statutory sentence of 25 years in prison and a fine in the amount of $250,000.  If convicted of the aggravated identity theft charges, Nellore faces a mandatory minimum statutory sentence of 2 years in prison and a fine in the amount of $250,000.  The court also may order an additional term of supervised release, fines or other assessments, restitution, and forfeiture, if appropriate.  However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.  

The United States Securities and Exchange Commission filed a separate civil action against Nellore, Barama, and three others today in the Northern District of California.  

Assistant U.S. Attorneys Daniel Kaleba and Patrick R. Delahunty are prosecuting the case with the assistance of Susan Kreider.  The prosecution is the result of an investigation by the FBI, with the assistance of the San Francisco Regional Office of the Securities and Exchange Commission.

Updated December 17, 2019