Saratoga News

Judge rules against software engineer in insider trading

By Sarah Lombardo

A 40-year-old Saratoga software engineer must pay back more than half a million dollars in trading profits to the Securities and Exchange Commission after being investigated by the commission and found guilty by a federal judge for insider trading.

In the civil case against him, Shahryar "Jerry" Soroosh was ordered by U.S. District Judge Vaughn Walker to turn over $505,819, plus prejudgment interest, to the SEC. Walker concluded in his ruling, released earlier this month, that Soroosh's actions in the months prior to a fourth-quarter earnings announcement in October 1996 by Octel Communications Corp., for whom he worked, were improper and a violation of securities codes.

"His trading activity and the circumstances surrounding it were consistent with the possession of insider knowledge, and he has offered no plausible explanation otherwise," Walker stated.

SEC investigators charge that Soroosh, who worked for the Milpitas-based voicemail software company from 1984 to 1996, had information regarding a delay in the shipment of an Octel software product before it was announced and used the information to bet on a fall in price of Octel stock, called "selling short," beginning in mid-September 1996. With earnings that quarter for Octel high, but the delay in the software expected to have a negative impact on earnings for the next two quarters, Octel stock dropped sharply Oct. 25, 1996, causing Soroosh to profit by half a million dollars in less than two months.

For his defense in the case, Soroosh claimed his trading activity from September to October 1996 was not out of the ordinary for him, and that he had no knowledge of the software delay. But the commission claimed that although he traded large amounts of Octel stock in previous years, the scale of his September trades was significantly higher than in the past. The SEC also claimed that another Octel employee with whom Soroosh was known to be good friends knew of the delay. SEC investigators also claim that only three days before the Octel announcement, Soroosh opened up an account with a brokerage, lied on the application about his employment-- leaving out the fact that he worked for Octel-- and borrowed money from his wife and brother-in-law in the months before to pay for his dealings.

Soroosh was not available for comment, but the report stated that he did introduce taped conversations with his brokers in which he declined to make trades that would have increased his profit even more. Walker, however, stated that, "This evidence cannot be viewed as conclusive."

Helane Morrison, chief of enforcement in San Francisco for the SEC, said that the ruling is significant. "It is the largest award for an insider trading case that has been brought by this office," she said. "The message of the case, I think, is that employees with confidential information on their company should be careful when they trade in stocks."

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