Los Angeles – On Friday, June 6, 2014, a trial team led by Paul Hastings partner Thomas A. Zaccaro, and Latham & Watkins partner Patrick E. Gibbs, won a major trial victory on behalf of the founder and former CEO of sTec, Inc., Manouch Moshayedi, in one of the largest insider trading cases ever brought by the U.S. Securities and Exchange Commission. After an eleven-day trial, the Santa Ana federal court jury deliberated for just four hours before delivering a verdict in Mr. Moshayedi’s favor on all of the SEC’s claims.
Started 2012, the complaint alleged that Manouch Moshayedi unjustly enriched himself by $267 million in August 2009 when he and family members sold nine million shares of sTec in a secondary offering while in possession of material, non-public information. The SEC also alleged that Manouch Moshayedi made material misrepresentations and omissions on two separate occasions. All of the SEC’s claims were rejected by the jury.
(Reuters) – 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 Commission.
Manouch 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 $260 million.
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, Manouch’s lawyer, said in an email.
According to the SEC, Manouch 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 bring charges.
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 trusts.
The case is Securities and Exchange Commission v. Manouch Moshayedi, U.S. District Court, Central District of California, No. 12-01179.