By Saabira Chaudhuri
STEC Inc. (STEC) Chief Executive Manouchehr Moshayedi has denied
all allegations made by the U.S. Securities and Exchange Commission
that he sought to take advantage of an upward trend in STEC's stock
price by selling a significant portion of his stock holdings as
well as shares owned by his brother, a company co-founder.
He called the SEC's claims "unjustified" and said he will
contest the commission's complaint vigorously.
"I pursued a sale of shares through a public offering at
significant additional cost to me in order to establish a more
transparent and orderly process, which also protected STEC and its
shareholders from large and unexplained piecemeal sales that would
have been triggered under my pre-existing 10b5-1 plan as the
company's stock rose rapidly," Mr. Moshayedi said.
According to the SEC's complaint, STEC's stock price soared from
January to August 2009 as the company reported higher revenue,
sales and margins for its products, particularly its flagship
flash-memory product called ZeusIOPS. In July 2009, the company
disclosed an agreement with its largest customer, EMC Corp. (EMC),
which agreed to buy $120 million worth of ZeusIOPS in the third and
fourth quarters of 2009.
However, in the days leading up to the secondary stock offering
on Aug. 3, 2009, the SEC said Mr. Moshayedi learned confidentially
that EMC's demand for ZeusIOPS was turning out to be less than
expected, which was likely to hurt the company's stock price.
Instead of calling off the offering, Mr. Moshayedi entered into a
secret side deal with EMC and proceeded with the sale of nine
million shares, the SEC said. Mr. Moshayedi and his brother saw
gross proceeds of about $134 million each from the offering.
According to the SEC's complaint, the offering was set to
coincide with the release of STEC's financial results for the
second quarter of 2009 and revenue guidance for the third quarter.
The SEC alleges that, ahead of the offering, Mr. Moshayedi learned
EMC's demand for ZeusIOPS was less than expected and wouldn't be
enough to ensure that STEC's third-quarter revenue guidance would
meet or exceed analyst expectations.
The SEC alleges Mr. Moshayedi, in the secret side deal,
convinced EMC to take $55 million of ZeusIOPS products in the third
quarter, more than it actually needed, in exchange for an
additional $2 million price discount on the product in the fourth
quarter.
On Thursday, Mr. Moshayedi said he and his brother, Mehrdad Mark
Moshayedi, incurred an $11.2 million underwriting discount on the
public offering and paid about $675,000 in transaction expenses,
costs they wouldn't have incurred if they had maintained their
established trading plans.
He denied the SEC's allegations that he was aware that a $120
million supply agreement between EMC and STEC for the second half
of 2009 would be the last supply agreement ever reached between EMC
and STEC, and that EMC's full-quarter demand for STEC's ZeusIOPS
drives during the third quarter of 2009 would be no more than what
EMC had already ordered from STEC during the first month of the
quarter.
Lead Independent Director Kevin C. Daly said STEC's board of
directors "unanimously supports Manouch's defense against the SEC
complaint, whose allegations in our judgment are without
merit."
Last month, the Santa Ana, Calif., computer-storage company said
it received investigation closure letters from the SEC, which said
it doesn't intend to recommend enforcement action against STEC or
its chief operating officer, who is also Manouchehr Moshayedi's
brother.
STEC's shares were down 1.6% to $7.50 in Thursday morning trade.
The stock is down 22% in the past 12 months.
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
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