SEC charges CEO with insider trading
WASHINGTON (Legal Newsline) - The Securities and Exchange Commission on Thursday charged the chairman and CEO of a Santa Ana, Calif.-based computer storage device company with insider trading.
The SEC alleges that Manouchehr Moshayedi wanted to sell a significant portion of his - and his brother's - stock of STEC Inc. during an increase in the stock price. His brother is a company co-founder.
The secondary offering was set to coincide with the release of the company's second quarter 2009 financial results and its revenue guidance for the third quarter.
However, before the secondary offering, Moshayedi allegedly learned critical nonpublic detrimental information about the company. Rather than cancel the sale, Moshayedi hid the truth through a secret side deal and proceeded with the sale of nine million shares, the SEC says, adding that he and his brother earned approximately $134 million each.
"Moshayedi put his own self-interest ahead of his responsibility to lead a public company and shareholders who placed their trust in him suffered as a result," said Michele Wein Layne, Director of the SEC's Los Angeles Regional Office.
"Company insiders are strictly prohibited under the securities laws from exploiting corporate dealings for private gain, particularly in the secretive and manipulative manner that Moshayedi did."
According to the SEC complaint filed in U.S. District Court for the Central District of California, STEC's stock price increased more than 800 percent from January 2009 to August 2009.The increase was a result of its flash memory ZeusIOPS sales.
The stock appreciation came after a July 2009 announcement of an agreement between STEC and its largest customer, EMC Corporation, which would buy $120 million worth of ZeusIOPS in the third and fourth quarter of 2009.
But Moshayedi allegedly learned two critical pieces of confidential information that indicated EMC's actual demand for the ZeusIOPS was lower than previously expected. He learned that EMC's actual demand for the ZeusIOPS product in the third quarter would only be approximately $34 million and was also told that EMC informed Moshayedi that it would never again enter into a similar agreement with STEC, the complaint alleges.
Moshayedi allegedly entered into a secret side deal with EMC in order to meet third quarter consensus revenue estimates. He arranged for EMC to buy $55 million of ZeusIOPS on July in exchange for an undisclosed additional $2 million price discount on the product in the fourth quarter, the SEC said. After making this deal the company announced that its quarterly revenue exceeded forecasts, the SEC said.
The SEC is alleging that Moshayedi violated securities fraud laws. According to the SEC, it wants the court to order him to "disgorge his own ill-gotten gains and the trading profits of his brother Mehrdad Mark Moshayedi, pay prejudgment interest and financial penalties, and be permanently barred from future violations and from serving as an officer and director of any registered public company."