SEC Loses Second Insider Trading Case In One Week

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SEC Loses Second Insider Trading Case In One Week

On Friday, June 6, a federal jury in California found the founder of STEC Inc., a storage device maker, not guilty on insider trading charges. This was the second insider trading case lost by the SEC in a week, following a loss in New York against hedge fund manager Nelson Obus and two other defendants. In the STEC case, the SEC alleged that founder Manouchehr Moshayedi secretly made a deal with a customer to hide a drop in demand in advance of a secondary offering. Moshaeydi allegedly knew that one of STEC’s primary customers, EMC Inc., would demand fewer of STEC’s most profitable products than analysts expected. Moshayedi then secretly made a deal that allowed EMC to take a larger share of inventory in exchange for a large undisclosed amount.

The SEC claims that after the deal with EMC was completed and STEC’s revenue guidance for the third quarter remained high, Moshayedi sold 9 million of his own shares before news of the EMC deal broke, earning gross proceeds of about $134 million each for himself and his brother. Moshayedi argued that the SEC’s claims were “an egregious case of fraud by hindsight,” and the jury seems to have agreed.

The loss against Moshayedi and that against Obus are two more in a string of defeats following those against Dallas Mavericks owner and Shark Tank star Mark Cuban and former Citigroup employee Brian Stoker. The SEC recently made a vow to bring even the most difficult cases to trial. Time will tell what effect, if any, these cases will have on the SEC’s approach.

If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies.

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