Solid-state drive maker Stec Inc said Manouch Moshayedi, its co-founder and chief executive of 22 years, resigned after U.S. regulators filed insider trading charges against him.
Mark Moshayedi, the departing CEO's brother, will take over as interim CEO, Stec said in a regulatory filing. Manouch Moshayedi will stay on the company's board.
The U.S. Securities and Exchange Commission said in July that Manouch Moshayedi, who knew a major customer's demand was below expectation, sold a significant part of his and his brother's holdings while Stec's shares were gaining value.
The top executive's resignation could mean that the company is trying to isolate itself from liabilities arising out of the lawsuit, ThinkEquity LLC analyst Rajesh Ghai told Reuters.
"If Manouch is found guilty, then he will not be liable for any damages, that is what the company is trying to do," he said.
Ghai also said it was possible that Stec's new auditor put a condition that Manouch Moshayedi should not remain the CEO, given the SEC lawsuit.
PricewaterhouseCoopers LLP resigned as the company's auditor on September 12. Analysts said the breakup could be a fallout of the insider trading charges.
Manouch and Mark Moshayedi, also the company's chief operating officer, co-founded Stec in 1990. They owned about 17 percent of its outstanding common stock as of December 31, 2011, according to the company's annual report.
Stec, which counts EMC Corp and IBM as customers, disclosed in 2009 that the SEC was conducting a formal investigation involving trading in the company's securities.
Investors may consider the resignation as a "slight positive," absolving Stec of any liabilities if 53-year-old Manouch Moshayedi is found guilty, Ghai said.
The Santa Ana, California-based company also has an insurance policy to absolve it of legal liability of about $15 to $20 million, he added.
Once a leader in the flash drive storage industry, Stec has seen its sales plunge over the last year as larger players such as Western Digital Corp and Seagate Plc have eaten into its market share.
Flash drives, or solid-state drives, are increasingly being used in devices ranging from high-performance servers to personal computers and tablets because they are faster and more power efficient than traditional hard disk drives.
The company's stock was unchanged at $7.08 on the Nasdaq in morning trading on Tuesday.
(Reporting by Neha Alawadhi in Bangalore; Editing by Joyjeet Das)