(Adds background, other cases, byline)
By Nate Raymond
June 6 A federal jury on Friday found the former
chief executive of sTec Inc not liable for trading on inside
information, a major loss for the U.S. Securities and Exchange
Manouchehr Moshayedi, 55, a co-founder of the computer
storage device company, was cleared of insider trading on
non-public information about a major customer's reduced demand
for a key product, enabling him and his brother to reap roughly
The case in Santa Ana, California, was one of the largest
U.S. insider trading enforcement actions to go to trial, and is
another setback for the SEC on the heels of an insider trading
trial loss a week earlier in New York.
"We are extremely grateful to the jury for their hard work
and their focus on the evidence," Patrick Gibbs, Moshayedi's
lawyer, said in an email.
SEC spokesman John Nester said the agency respected the
verdict "but will continue to aggressively enforce the law when
we believe the evidence supports the allegations."
Filed in 2012, the lawsuit alleged Moshayedi and his bother,
Mark, had planned in 2009 to sell a large chunk of their sTec
stock during a secondary offering coinciding with the release of
sTec's second-quarter results.
According to the SEC, Moshayedi then learned sTec's largest
customer, EMC Corp, would have less demand than expected
for its flagship flash memory drive product and would not renew
a $120 million supply contract.
Rather than call off the stock offering, Moshayedi sought to
hide the facts via a secret side deal with EMC, while continuing
with the sale, the SEC said.
Moshayedi, who resigned as sTec's CEO following the lawsuit,
denied any wrongdoing.
Gibbs contended that Manouchehr Moshayedi did not know EMC
would have excess inventory, reducing its demand, and that those
risks were "clearly disclosed."
The SEC also investigated sTec and Mark Moshayedi, a
co-founder of the company, but told both in 2012 it would not
Western Digital Corp acquired sTec last year for
The SEC previously said that it would seek to recoup $167.6
million plus interest from Manouchehr Moshayedi if he was found
There has been a surge in SEC trials. So far this fiscal
year, the commission finished 24, compared with 16 in all of
Results have been mixed. Last month, jurors in New York
cleared Nelson Obus, a fund manager at Wynnefield Capital Inc,
and two others of insider trading.
Earlier in May, a jury in New York found Texas businessman
Samuel Wyly and the estate of his brother, Charles, liable for
fraud in connection with undisclosed stock trading in offshore
The case is Securities and Exchange Commission v. Moshayedi,
U.S. District Court, Central District of California, No.
(Reporting by Nate Raymond in New York; Editing by Marguerita
Choy and Andre Grenon)