The Securities and Exchange Commission on Monday charged three software engineers from cloud software provider Twilio and several of their friends and family members with involvement in an insider trading scheme.
Between March and May 2020, as cloud tools became more common due to the rise of remote work, Twilio engineers Lokesh Lagudu, Chotu Pulagam and Hari Sure accessed financial information from the company’s databases. Through a private chat group, they shared that information with others, who then executed trades before Twilio announced first-quarter results in May 2020, according to the complaint filed in the U.S. District Court for the Northern District of California.
Twilio’s results beat estimates and the stock soared. The group generated over $1 million in profits as a result of the program, the SEC said.
It’s an issue that regulators are paying increasing attention to. The SEC has proposed new rules for executive stock sales and is reportedly investigating a sale of Tesla board member Kimbal Musk. Meanwhile, US lawmakers have been discussing bills that would ban members of Congress from buying and selling stocks.
The three Twilio engineers sat on a team responsible for sending out customer invoices, and each had signed an agreement that they would not disclose non-public information in a way that could lead to illegal trading. Twilio’s software helps businesses communicate with customers.
Sure passed information about the dates to his friend Dileep Kamujula and Pulagam gave details to his brother Chetan Pulagam. Lagudu gave information to his friend Sai Nekkalapudi and friend Abhishek Dharmapurikar.
After receiving the information, Sure transferred around $10,000 to Kamujula, who then bought Twilio call options. Nekkalapudi and Chetan Pulagam, meanwhile, applied for permission to trade options from brokerage accounts they hadn’t used in years, the complaint said.
“We allege that this insider trading ring exploited valuable pandemic-related revenue information at a San Francisco technology company,” said Monique C. Winkler, acting regional director of the SEC’s San Francisco regional office, in a press release. “We hold these alleged Tippers and Tippees accountable for their role in the program.”
Separately, the US Attorney for the Northern District of California filed criminal complaints against Kamujula, charging him with securities fraud in connection with his trade. The SEC charges are civil in nature and primarily seek fines.
A Twilio spokesman could not confirm the employment status of Lagudu, Pulagam or Sure.
“The Company is aware of the investigations being conducted by the US Attorney’s Office and the Securities and Exchange Commission and the indictments filed today,” the spokesman said. “The company has fully cooperated with both agencies.”
The Twilio engineers reportedly communicated in a private chat group and exchanged messages in Telugu, a language primarily spoken in southern India. Based on the customer data, they said in the group that the stock would definitely go higher after the results.
“Lagudu announced on the chat channel that it had ‘checked’ an internal revenue database and found that ‘SMS and other costs have increased this month’ and that email revenue had also ‘increased,'” the said SEC in the complaint.
Lagudu told his colleagues that some customers were sending three times as many messages as before, noting that the group watched one customer go from tens of thousands of dollars in sales in previous months to almost $2 million in March.
Two days before Twilio released its first-quarter results, Sure said on the chat group that the stock appeared to go from about $110 at the time to $150, prompting Chotu Pulagam to reply, “Millionaireeeeee.”
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