Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, July 19, 2012

SEC Charges CEO with Insider Trading in Secondary Offering of Company Stock

The SEC charged Manouchehr Moshayedi, the chairman and CEO of STEC Inc., a Santa Ana, Calif.-based computer storage device company, with insider trading in a secondary offering of his stock with knowledge of confidential information that a major customer’s demand for one of its most profitable products was turning out to be less than expected. 

According to the SEC, Moshayedi sought to take advantage of a dramatically upward trend in the stock price of STEC Inc. by selling a significant portion of his stock holdings as well as shares owned by his brother, a company co-founder. The secondary offering was set to coincide with the release of the company’s financial results for the second quarter of 2009 and its revenue guidance for the third quarter. However, in the days leading up to the secondary offering, Moshayedi learned critical nonpublic information that was likely to have a detrimental impact on the stock price. Moshayedi did not call off the offering and abstain from selling his shares once he possessed the negative information unbeknownst to the investing public. Instead, he engaged in a fraudulent scheme to hide the truth through a secret side deal, and proceeded with the sale of 9 million shares from which he and his brother reaped gross proceeds of approximately $134 million each.

The SEC’s complaint charges Moshayedi with violating the anti-fraud provisions of U.S. securities laws and seeks a final judgment ordering 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.

http://lawprofessors.typepad.com/securities/2012/07/sec-charges-ceo-with-insider-trading-in-secondary-offering-of-company-stock.html

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