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sTec flash founder cleared of insider trading charges

Moshayedi brother found not guilty

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The wheels of SEC justice in the US grind exceedingly slowly and sometimes uselessly. Manouche Moshayedi, the founder and CEO of sTec, has just been cleared of insider trading charges filed almost four years ago.

Since then sTec’s business has tumbled and it was bought by Western Digital for $340m – which was characterised as a bit of a distress purchase – in June last year. At $340m, too distressing.

Anyway, part of flash high-flyer sTec’s troubles started in August 2009, with EMC cutting back on its purchase commitments for sTec’s ZeusIOPS SSD. The SEC alleged that Moshayedi had sold shares before investors cottoned on, thus selling therm at an unjustified price which should have been lower if all investors knew of sTec’s EMC problem.

Compounding this was Moshayedi cutting a deal with EMC to bring forward planned future purchases into the then current quarter by offering a discount. EMC duly advanced its orders and, the SEC said, the EMC order rate then looked high but was artificial.

The SEC duly took him to court, alleging he had made a gain of $134m improperly. The Santa Ana, CA, jury in the case returned a not guilty verdict, delivering a third “not guilty” bloody nose to the SEC, which has lost two previous insider trading court cases recently.

Bloomberg reports Moshayedi as saying: ”The justice system works. The jurors listened to the evidence. I am grateful to them.”

John Nester, an SEC spokesman, was quoted as saying: ”We respect the jury’s verdict but will continue to aggressively enforce the law when we believe the evidence supports the allegations.”

Chris says

In this case Moshayedi said the discount deal had in fact been leveraged to avoid end-of-quarter chaos from EMC's habit of late ordering. Had the SEC done its homework, it would have found this was quite true as EMC has over the past few quarters made changes to even out its business from an over-dependence on late quarter sales. We reported on its efforts to lessen back-end loading of customer orders here.

Should have read The Register, Mr Nester. ®

The case was Securities and Exchange Commission v. Manouchehr Moshayedi, 12-cv-01179, U.S. District Court, Central District of California (Los Angeles).

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