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Sivannarayana Barama, a former Palo Alto Networks engineer, urged the Ninth Circuit on Monday to overturn his securities fraud conviction and 18-month prison sentence. Barama argued that his lack of a personal relationship with the tipper undermines the evidence that he traded on insider information, calling into question the legitimacy of his December 2022 conviction for profiting nearly $7 million through illegal stock trades.

Allegations and Trial Background

Barama’s conviction stems from insider trading involving confidential revenue data from Palo Alto Networks, obtained by Janardhan Nellore, an IT employee at the company. Prosecutors alleged that between 2015 and 2018, Nellore used his administrative access to steal nonpublic information, trading on it himself and sharing it with Barama, who also reaped significant gains.

Nellore pled guilty to the scheme and cooperated with authorities, testifying against Barama. Jurors convicted Barama on four securities fraud counts but acquitted him of conspiracy.

Barama’s Appeal Arguments

Representing Barama, Karen Lee Landau argued that the evidence failed to prove a personal relationship between Barama and Nellore, a key component of insider trading liability. While they communicated via text and WhatsApp and occasionally had tea when working together, Landau noted that:

• The two did not socialize outside work after Barama left Palo Alto Networks in 2016.
• Nellore testified that he did not consider Barama a friend.

“They weren’t friends,” Landau said. “They didn’t socialize.”

Landau also criticized the trial court for constructively amending the indictment to include omissions as a basis for conviction without establishing a duty to disclose. She further argued that the court erred in calculating Barama’s sentence based on gains instead of losses, claiming the gains were inflated.

Government’s Response

Lloyd A. Farnham, arguing for the government, contended that the relationship between Barama and Nellore met the standard for a personal connection. He highlighted hundreds of texts and phone calls between the two, many on nights and weekends, discussing trading strategies.

“Nellore did testify ‘we were not friends,’ but … they spoke frequently — hundreds of times by phone and texts,” Farnham said. “That’s a close personal relationship.”

Farnham also emphasized that Nellore shared confidential information in violation of corporate obligations and was misled by Barama about the volume of trades being conducted. He defended the trial court’s reliance on gains to calculate the sentence, arguing that losses were harder to quantify.

Judicial Skepticism of the Appeal

During the hearing, U.S. Circuit Judge Milan Dale Smith expressed skepticism about Barama’s argument that he had no personal relationship with Nellore.

“It kind of begs credulity to suggest that when there are hundreds of contacts over a period of time that they had no relationship,” Judge Smith said. “It just doesn’t make any sense.”

Barama’s counsel likened their relationship to that of a financial advisor and a client, but Judge Smith appeared unconvinced.

Panel Deliberation

The appellate panel, consisting of Judges Milan Dale Smith, Jr., Eric D. Miller, and Patrick J. Bumatay, took the matter under advisement. A ruling is expected at a later date.