By Nathalie Tadena
The Securities and Exchange Commission has charged the chairman and chief executive of STEC Inc. (STEC), a Santa Ana, Calif.-based computer-storage company, with insider trading in a secondary offering of his company's shares.
The SEC alleges that Manouchehr Moshayedi sought to take advantage of an upward trend in STEC's stock price by selling a significant portion of his stock holdings as well as shares owned by his brother, a company co-founder.
According to the SEC's complaint, STEC's stock price soared from January to August 2009 as the company reported higher revenue, sales, and margins for its products, particularly its flagship flash-memory product called ZeusIOPS. In July 2009, the company disclosed an agreement with its largest customer, EMC Corp. (EMC), which agreed to buy $120 million worth of ZeusIOPS in the third and fourth quarters of 2009.
However, in the days leading up to the secondary stock offering on Aug. 3, 2009, Mr. Moshayedi learned confidentially that EMC's demand for ZeusIOPS was turning out to be less than expected, which was likely to hurt the company's stock price. Instead of calling off the offering, Mr. Moshayedi entered into a secret side deal with EMC and proceeded with the sale of nine million shares, the SEC said. Mr. Moshayedi and his brother saw gross proceeds of approximately $134 million each from the offering.
Mr. Moshayedi's attorney was unavailable for comment.
According to the SEC's complaint, the offering was set to coincide with the release of STEC's financial results for the second quarter of 2009 and revenue guidance for the third quarter. The SEC alleges that, ahead of the offering, Mr. Moshayedi learned EMC's demand for ZeusIOPS was less than expected and wouldn't be enough to ensure that STEC's third-quarter revenue guidance would meet or exceed analyst expectations.
The SEC alleges Mr. Moshayedi, in the secret side deal, convinced EMC to take $55 million of ZeusIOPS products in the third quarter, more than it actually needed, in exchange for an additional $2 million price discount on the product in the fourth quarter, the SEC said.
After securing the deal, STEC disclosed its orchestrated guidance figures. Even though EMC on the morning of August 3 told Mr. Moshayed it wouldn't make further volume commitments, Mr. Moshayed withheld this information from investors prior to the offering.
--Ben Fox Rubin contributed to this article.
Write to Nathalie Tadena at email@example.com
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