Mark Moshayedi claims that he has built his career as a serial entrepreneur by founding and expanding prosperous businesses. Through the businesses he founded, Mark Moshayedi over his career generated hundreds of millions of dollars in enterprise value. Mark Moshayedi founded businesses with great success in the fields of technology, real estate, travel, and classic vehicles.
Mark Moshayedi received his M.B.A. from Pepperdine University and his B.S. in Electrical Engineering from the University of California, Irvine. Mark Moshayedi co-founded STEC Inc., formerly known as SimpleTech, and served as its Chief Executive Officer from 2013 until its sale to HGST for $340M, combining his talents in technology, engineering, and business. He created more than 50 patentable inventions during his 21 years at STEC, where he also played a key role in the creation of the company’s ground-breaking solid-state storage devices business.
Lawsuit against Mark Moshayedi
SEC Accuses Mark Moshayedi of Fraud
The chairman and CEO of STEC allegedly cheated investors and participated in insider trading to profit $134 million from a 9 million share issuance of his company’s shares, according to the Securities and Exchange Commission.
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STEC, a Santa Ana-based company run by Manouchehr Moshayedi that sells fast, large-capacity flash storage devices for PCs, witnessed a more than 800% increase in stock value in 2009. In the third and fourth fiscal quarters of 2009, STEC announced a $120 million arrangement with its largest customer (nonparty), EMC Corp., to purchase Zeus IOPS drives from STEC. This was followed by a surge in sales, the lawsuit claims.
The SEC, however, claims that Manouchehr Moshayedi omitted “two critical” information before moving forward with a public offering to profit from STEC’s growth: that EMC’s demand for its flash drive product was far lower than anticipated; and that a supply agreement with the customer was a “‘one off’ deal.”
Instead of going public, Moshayedi “embarked on a fraudulent course of conduct” by failing to disclose in the financial statements for the second quarter that EMC’s demand for the Zeus IOPS product for the third fiscal quarter was only $34 million. According to the SEC, those financial figures were announced on August 3, 2009, the same day the secondary offering was conducted.
To carry out this plan, Moshayedi made a covert agreement with EMC in which EMC agreed to purchase $55 million worth of Zeus IOPS products in the third quarter, significantly more than it required, in exchange for a concealed $2 million price discount. He then provided STEC with sales guidance for the third quarter that matched analyst consensus projections. However, this guidance included $55 million in orders from EMC, which was roughly $21-22 million higher than EMC’s actual expected demand for the quarter. This was only made feasible by his covert agreement with EMC, according to the lawsuit.
The complaint claims that Moshayedi and his brother, Mehrdad Mark Moshayedi, who is also a co-founder of STEC, each sold 4.5 million shares for about $134 million after a secondary offering in August 2009.
Mehrdad The complaint was submitted to the U.S. District Court for the Central District of California, however, Mark Moshayedi is not a party to it.
The SEC claims that three months later, Moshayedi revealed for the first time that the EMC deal was a one-off. The lawsuit claims that STEC stock then dropped by almost 39 percent, from a closing price of $23.15 on November 3 to a closing price of $14.14 the following day.
“Moshayedi put his self-interest ahead of his responsibility to lead a public company, and shareholders who placed their trust in him suffered as a result,” Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office stated in a news release. According to the securities rules, it is strictly forbidden for company insiders to take advantage of business activities for their benefit, especially covertly and deceptively Moshayedi did.
Finola Manvelian, an attorney for the SEC, filed the action under the Securities and Exchange Act for fraud in the offer and sale of securities as well as fraud in connection with the purchase or sale of securities.
Investigators are seeking a ruling that will require Moshayedi to disgorge his and his brother’s earnings from the offering and prohibit him from holding any positions of authority inside a company that issues securities.
What is a Red Flag?
A red flag serves as a signal or sign that there may be an underlying issue or danger associated with a company’s stock, financial statements, or news reports. These indicators can come in many forms and are often identified by analysts or investors as any notable undesirable trait.
Stec’s CEO leaves after accusations of insider trading
In July, the SEC brought a civil lawsuit against Manouch Moshayedi.
Analyst: He may be attempting to distance itself from potential legal risks.
Manouch Moshayedi, the co-founder and 22-year chief executive of the solid-state drive manufacturer Stec Inc., announced his resignation after allegations of insider trading were brought against him by American officials.
The Brother of the retiring CEO Mark Moshayedi will take over as interim CEO, according to a regulatory filing by Stec. The company’s board will continue to include Manouch Moshayedi.
The U.S. Securities and Exchange Commission reported in July that Manouch Moshayedi sold a sizable portion of his and his brother’s ownership when Stec’s shares were increasing in value because he knew a major customer’s demand was lower than anticipated.
Rajesh Ghai, an analyst at ThinkEquity LLC, told Reuters that the resignation of the senior executive would indicate that the business is attempting to shield itself from potential lawsuit risks.
The corporation is attempting to have Manouch not be responsible for any damages if he is found guilty, he claimed.
Ghai added that given the SEC case, it was probable that Stec’s new auditor placed a requirement that Manouch Moshayedi not continue in his role as CEO.
On September 12, PricewaterhouseCoopers LLP resigned as the organization’s auditor. Analysts predicted that the separation could result from insider trading allegations.
In 1990, Manouch and Mark Moshayedi, who is also the COO of the business, formed Stec. According to the company’s annual report, as of December 31, 2011, they held around 17% of the company’s outstanding common stock.
EMC Corp. and IBM are among the clients of Stec, which revealed in 2009 that the SEC was looking into stock trading involving the company’s securities.
Investors might view the departure as a “slight positive,” freeing Stec from any obligations if Manouch Moshayedi, 53, is found guilty, according to Ghai.
He noted that the company, which is situated in Santa Ana, California, also has insurance to cover a $15 to $20 million legal liability.
As larger competitors like Western Digital Corp. and Seagate Plc have eaten into its market share, Stec, formerly a pioneer in the flash drive storage industry, has seen its revenues plummet over the past year.
Because flash drives and solid-state drives are faster and more energy-efficient than conventional hard disk drives, they are rapidly being employed in a variety of devices, from high-performance servers to personal PCs and tablets.
The company’s shares were trading unchanged at $7.08 in the morning on the Nasdaq.
Ex-sTec CEO’s insider trading charge is dropped by the U.S. SEC
The former CEO of sTec Inc. was found not guilty by a federal jury on Friday of trading on insider knowledge, which was a significant setback for the U.S. Securities and Exchange Commission.
On the basis of secret information regarding a significant customer’s decreased demand for a vital product, Manouchehr Moshayedi, 55, a co-founder of the computer storage device company, was exonerated of insider trading, allowing him and his brother to profit by around $260 million.
The SEC suffered another blow following the loss of an insider trading trial a week earlier in New York. The case in Santa Ana, California, was one of the largest U.S. insider trading enforcement proceedings to go to trial.
Moshayedi’s attorney, Patrick Gibbs, wrote in an email, “We are tremendously appreciative to the jury for their hard work and their emphasis on the evidence.
When we think the evidence supports the claims, we will continue to aggressively enforce the law, according to SEC spokesperson John Nester. The case, which was filed in 2012, claimed that Moshayedi and his brother, Mark Moshayedi, had intended to sell a sizable portion of their sTec stock in 2009 during a secondary offering timed to coincide with the publication of sTec’s second-quarter results.
The major customer of sTec, EMC Corp, would have less demand than anticipated for its flagship flash memory drive product, according to the SEC, and would not renew a $120 million supply contract.
According to the SEC, Moshayedi chose to conceal the information through a covert side agreement with EMC rather than cancel the stock offering. Following the lawsuit, Moshayedi, the CEO of sTec, resigned and denied any misconduct.
Manouchehr Moshayedi did not realize EMC would have extra inventory, which would reduce its demand, according to Gibbs, who also claimed that those risks were “clearly disclosed.” The SEC also looked into sTec and Mark Moshayedi, one of the company’s co-founders, but informed both in 2012 that it would not file any charges.
STec was purchased by Western Digital Corp last year for $340 million.
If Manouchehr Moshayedi is proven to be responsible, the SEC has previously stated that it will attempt to recover $167.6 million plus interest from him.
The number of SEC trials has increased. The commission has completed 24 projects so far this fiscal year, as opposed to 16 for the entire previous year.
The results are inconsistent. Nelson Obus, a fund manager at Wynnefield Capital Inc., and two other people were exonerated of insider trading by a New York jury last month. A jury in New York earlier in May held Texas businessman Samuel Wyly and the estate of his brother, Charles, guilty of fraud in relation to hidden stock trading in offshore trusts.
Securities and Exchange Commission v. Moshayedi, Central District of California U.S. District Court, No. 12-01179, is the case at hand.
