Three software engineers at communications platform company Twilio leveraged what they learned while working on an internal billing platform to help them and their family and friends make $1 million in stock trades, the Securities and Exchange Commission said.
The engineers were assigned to the company’s billing platform group, which manages internal systems for generating customer invoices. After invoices are sent out, the data is aggregated and used in the company’s month-end and quarterly close processes for reporting earnings.
Early in the pandemic, the data showed a spike in customer usage of the company’s platform, pointing to higher-than-expected performance as compared to when the company next went out with its public guidance.
“Twilio’s customers began to substantially increase their reliance on cloud communications as a result of the pandemic, and Twilio’s revenues and earnings began to exceed … expectations by many multiples of the company’s prior guidance,” the SEC said in its complaint.
In their native Telugu language, the engineers – Hari Sure, Lokesh Lagudu and Chotu Pulagam – used an internal communications chat channel to talk about the money-making opportunities the information gave them.
“[lt] looks like [the stock price] is going to be $150,” Sure said on the chat channel. At the time, the share price was around $110.
Pulagam responded with “Miillionaireeeeee.”
Despite agreeing to the company’s confidentiality policy regarding material, non-public information when they were hired, the engineers shared the information with family and friends, along with directions for buying and trading the stock.
In anticipation of an upcoming earnings announcement, one contact purchased risky out-of-the-money call options, another traded shares using a brokerage account that had been inactive for several years, and another purchased call options using an account that hadn’t been used to trade Twilio stock for several years.
In its May 6, 2020, announcement, in which it reported greater than expected earnings, the company’s stock price increased about 40% from the prior day’s closing price of approximately $122 per share. It closed at about $170 per share on May 7.
As a result of the increase, the engineers and their contacts realized more than $1 million in trading gains.
"We allege that this insider trading ring took advantage of valuable revenue information related to the pandemic," Monique Winkler, acting director of the SEC’s San Francisco Regional Office, said in a statement. "We are holding these alleged tippers and tippees accountable for their roles in the scheme."
Among other things, the SEC is seeking disgorgement of the trading gains and civil monetary penalties.
Separately, the U.S. Attorney’s Office for the Northern District of California is pursuing criminal charges against one of the external contacts.