SEC Charges Monouchehr Moshayedi With Insider Trading

SEC v. Monouchehr Moshayedi, Case No. SACV12-1179 (C.D. Cal.)  On July 19, 2012, the SEC announced insider trading charges against Monouchehr Moshayedi in connection with the sale of nine million shares of stock in STEC, Inc. (“STEC”) in August 2009.  Moshayedi is a founder, and the chairman of the board and chief executive officer of STEC, which makes and sells computer storage devices.  In 2009, STEC’s stock rose dramatically, increasing more than 800% from January to August.  This stock increase came as the company reported increased revenues, sales and margins for its products.  In order to take advantage of this run-up in the stock price, Moshayedi and his brother, Mehrdad Mark Moshayedi, who was also a founder of STEC, decided to sell a significant portion of their STEC holdings in a secondary offering of their shares.  The secondary offering was scheduled to commence on August 3, 2009, the same day that STEC was to release its financial results for the second quarter of 2009 and announce its revenue guidance for the third quarter.  Shortly before the offering, Moshayedi learned two critical, but not publicly known, pieces of negative information related to decreased demand for certain STEC products.  As a result, STEC could not ensure that it would meet its third quarter revenue guidance.

With this material, non-public information in hand, Moshayedi concealed the truth about the demand for STEC’s product, and proceeded with the secondary offering of his and his brother’s STEC shares.  He then announced third quarter revenue guidance for STEC that met the analysts’ consensus estimates.  Moshayedi went ahead with the offering without disclosing the negative information.  Moshayedi and his brother each sold 4.5 million shares of their STEC stock, and each received gross proceeds, before expenses, of $133,920,000.  Three months later, in November 2009, some, but not all, of the material, non-public information Moshayedi possessed when he sold was finally disclosed.  Moshayedi is charged with violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  The SEC is seeking injunctive relief, civil monetary penalties and disgorgement.

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