SEC settles insider trading charges against Andy Bechtolsheim, co-founder of Arista, Sun Microsystems

Andy Bechtolsheim, a co-founder of Sun Microsystems and Arista Networks, has settled with the US Securities and Exchange Commission on insider trading accusations. The deal will cost him almost $1 million and prevent him from acting as a public company officer or board for five years.

Bechtolsheim, worth over $16 billion, faces civil accusations related to Cisco’s 2019 acquisition of Acacia Communications. The SEC said that Bechtolsheim confidentially learned of a “impending acquisition” on July 8, 2019, and exchanged Acacia options, netting him “combined illegal profits” of more than $415,000 once the agreement was made public the next day.

Cisco announced its agreement to buy networking business Acacia for $70 per share in a $2.6 billion transaction, sending Acacia’s stock up 35%. The transaction closed in 2021 at $115 per share, for a total of $4.5 billion.

The complaint, filed Tuesday in federal district court in San Jose, California, said that Bechtolsheim, Arista’s then-chairman and chief development officer, learned of Acacia’s impending acquisition via an employee at another, unidentified global tech business. According to the lawsuit, the employee spoke with Bechtolsheim about the company’s probable offer to purchase Acacia.

Following the talk, Bechtolsheim traded Acacia options in the brokerage accounts of a close cousin and a colleague, according to the lawsuit.

“Bechtolsheim knew or was reckless in not knowing that the information he learned about Acacia’s impending acquisition was material and nonpublic,” according to the complaint. “Bechtolsheim also knew or was reckless in not knowing that he had a duty of trust and confidence to keep such information confidential and not trade in Acacia securities based on this information.”

The SEC stated that Bechtolsheim settled his charges without admitting or denying the claims against him. He consented to pay a fine of $923,740.

Bechtolsheim, 68, resigned as Arista’s chairman and development head in December but remains its chief architect. He is the company’s largest stakeholder, with a stake of about $14 billion.

“While the SEC announcement did not involve any trading in Arista securities, Arista takes compliance with the company’s code of conduct and insider trading policy very seriously,” an Arista representative told CNBC via email. “Arista will respond appropriately to the situation.”

Bechtolsheim’s attorneys did not respond to CNBC’s request for comment.
Bechtolsheim, who lives in Incline Village, Nevada, co-founded Arista in 2004 and took the firm public ten years later. The networking vendor today has a market capitalization of about $95 billion.

Bechtolsheim co-founded Sun Microsystems in 1982 alongside Scott McNealy, Vinod Khosla, and Bill Joy, where he served as chief hardware designer. In 2009, Oracle announced the $7.4 billion acquisition of Sun Microsystems.