SEC takes ex-CEO to trial over insider trade in sTec stock offer

SANTA ANA, California Wed May 21, 2014 5:10pm EDT

SANTA ANA, California May 21 (Reuters) - A lawyer for the U.S. Securities and Exchange Commission urged jurors Wednesday to hold a former technology chief executive liable for trading on inside information that the regulator says enabled him and his brother to reap roughly $260 million.

John Berry, the SEC lawyer, said during opening statements in Santa Ana, California, federal court, that former sTec Inc CEO Manouchehr Moshayedi traded in a secondary offering of the company's stock in 2009 while knowing a major customer's demand for a flagship flash memory product was less than expected.

"This case is about a CEO of a tech company and what he was willing to do to make millions of dollars," Berry told jurors in the civil trial.

But Patrick Gibbs, Moshayedi's lawyer, countered that the SEC's claims were "completely misleading."

"The SEC's story is just that, a story," he said. "It's not the truth."

The case is the latest test of the regulator's power amid a push by SEC Chair Mary Jo White to strengthen enforcement and take more cases to trial.

The trial comes roughly a week after a federal jury in New York sided with the SEC, finding Texas businessman Samuel Wyly and the estate of his brother, Charles, liable for fraud in connection with undisclosed stock trading in offshore trusts.

In 2009, Moshayedi, 55, had been planning to sell a large portion of his sTec stock holdings and those of his brother, Mark Moshayedi, who co-founded the company, the SEC said.

The offering would coincide with sTec's second-quarter results and next quarter guidance in August 2009.

Berry said before the offering, Moshayedi learned that demand from sTec's largest customer, EMC Corp, for its flash memory drive would be less than expected. EMC also told Moshayedi it would not renew a $120 million supply contract, Berry said.

These details weren't disclosed to investors until November 2009.

Rather than "take his lumps" and cancel the August stock sale, Berry said Moshayedi entered into a secret side deal with EMC to meet quarterly analyst estimates.

The offering allowed Moshayedi and his brother to earn $134 million each, the SEC said.

"He buried the bad news and by the time he told the truth, his $130 million was safely in his bank account," Berry said.

Gibbs, though, said Moshayedi didn't know EMC would have excess inventory, reducing demand. Moshayedi continued to believe EMC would order more drives, and retained millions of shares even after the offering.

"He still had enormous skin in the game," Gibbs said.

The SEC in an October court filing said if successful, it would seek to have Moshayedi disgorge $167.6 million, plus interest.

The SEC also investigated sTec and Mark Moshayedi, but notified both in 2012 it would not bring a case against them. Western Digital Corp acquired sTec last year for $340 million.

The case is Securities and Exchange Commission v. Moshayedi, U.S. District Court, Central District of California, No. 12-01179. (Additional reporting by Nate Raymond in New York; Editing by Noeleen Walder and Eric Walsh)

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