Krzanich deal valued at $39 million occurred as the company
faced chip-security troubles
By Ted Greenwald
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 9, 2018).
The sale of Intel Corp. stock by Chief Executive Brian Krzanich
while the company was handling concerns about security flaws in its
chips was a highly unusual move that risked attracting regulatory
scrutiny, according to lawyers and analysts who follow executive
stock sales.
The trade took place on Nov. 29, nearly six months after Intel
was informed about the vulnerabilities, which could enable hackers
to access user data in chips made by Intel and others. Mr. Krzanich
sold shares and exercised stock options valued at a total of $39
million, netting him nearly $25 million, according to regulatory
filings made at the time.
Word of the security flaws didn't become public until last week,
sending Intel's shares down.
The timing of Mr. Krzanich's sale "is really odd," said Dan
O'Connor, an attorney specializing in securities with the law firm
Ropes & Gray. "The timing, the size, the unusual nature
compared to prior sales -- that's going to get this a lot of
scrutiny."
The trade took place under a U.S. Securities and Exchange
Commission rule that allows officers and directors of public
companies to prearrange sales of specific numbers of shares at
particular times. The rule prohibits insiders from setting up such
transactions while possessing undisclosed information that might
affect the stock price, Mr. O'Connor and other securities experts
said.
A spokesman for Intel said Mr. Krzanich's divestiture was
unrelated to the chip-security issue and the sale was based on a
prearranged trading program. The company declined to make Mr.
Krzanich available for an interview.
Regulatory filings show that Mr. Krzanich established the
divestiture plan about a month before the trade, on Oct. 30, long
after Intel learned of the chip vulnerabilities in June.
Intel hasn't said when Mr. Krzanich was informed of the issue.
The company declined to provide further comment.
Intel's stock was up about 20% year-to-date when Mr. Krzanich
put the trading plan in place, with almost all of those gains
occurring in the prior two months.
Mr. Krzanich's trade stands out because it deviated from the
CEO's previous pattern of incremental sales of Intel stock,
according to Ben Silverman, a researcher at InsiderScore LLC, a
clearinghouse for information about trades made by corporate and
institutional insiders. Using the same SEC rule for trades by
company officials, the CEO had exercised options and sold shares
generally at monthly or quarterly intervals in the prior two years,
involving no more than 80,000 shares in any given transaction,
according to Mr. Silverman's analysis.
On Nov. 29, Mr. Krzanich sold more than 245,000 shares, nearly
50% of his unrestricted stock, reducing his unrestricted holding to
250,000 shares, the minimum set by Intel's
executive-stock-ownership guidelines, according to the company's
most recent proxy statement. That was an unusual move by a CEO, Mr.
Silverman said. Moreover, Mr. Krzanich liquidated all his options,
more than 644,000 shares valued at more than $28 million in
total.
"It's not just that he sold stock knowing about the security
issue," he said. "The size and selling behavior were unusual. Put
those two elements together, and certainly on the surface it
doesn't look good."
Mr. Silverman and other securities experts said they would
expect U.S. regulators to examine Mr. Krzanich's trade to see if it
violated insider-trading regulations, although such cases are
difficult to win. A spokesman for the SEC declined to comment.
For an insider trade to violate the rule, the information held
by Mr. Krzanich about the security vulnerabilities in Intel chips
at the time he made the trade would have to be deemed material to
Intel's business, the securities experts said. Intel said last week
that it didn't expect the issue to have any material impact on its
business.
That might be reasonable, said Doug Chia, who oversees
governance issues at the Conference Board, a nonprofit business
advisory group. Tech companies frequently discover security flaws,
many of which are insignificant or easily fixed, he said.
Even so, other securities specialists say companies generally
would want to be careful in communicating with investors about a
CEO's stock sale in such circumstances.
"At first glance, it's a very unusual type of thing that
shareholders and directors would want a fairly tight explanation
about," said David Larcker, a professor of securities law at
Stanford University. "It may be fine, but it's the kind of thing
you'd want to really understand and be transparent with
shareholders about."
At the time of Mr. Krzanich's sale, Intel was working with chip
rivals and software partners to patch the security flaws, which
were built into a variety of chips including virtually all Intel
processors going back more than a decade. Intel was by far the
company most affected by the problem, because it has dominant
market share in chips used for servers and personal computers.
The companies had planned to announce the problem and their
fixes on Jan. 9, but news of the security flaws leaked earlier.
Intel shares then fell over 5% total on Wednesday and Thursday. The
stock rose less than 1% on Friday and closed flat at $44.74
Monday.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
January 09, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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