[ by Howard Haykin ] The founder, Chairman and CEO of a publicly-traded California computer storage device company was charged with insider trading based apparently on confidential information he had about a major customer's activities. Defendant and Company. Manouchehr Moshayedi serves as the CEO and chairman of the board of directors of STEC, Inc. - positions he has held since 1990, when he founded the company with brothers Mehrdad Mark Moshayedi and Mike Masoud Moshayedi.  Moshayedi held a BS degree in engineering and an MBA degree, which he obtained in 1985.  Brother Mark Moshayedi has been the president of STEC since March 2007, and its COO and CTO (technical) since 1995. STEC, Inc. is a California corporation with its principal place of business in Santa Ana, CA. STEC designs, manufactures and markets computer storage devices using what are called "flash" memory and "Dynamic Random Access Memory," or "DRAM," technologies.  STEC specializes in developing high-speed, high-capacity computer storage cards that use flash solid state drives, or "SSDs."  STEC went public in September 2000, and has traded on the Nasdaq National Market;  since July 2006, STEC's stock has been listed on the Nasdaq Global Select Market. Dramatic Run-up in Price. In 2009, STEC's stock rose dramatically, increasing more than 800% from January to August.  This stock increase came as the company reported increased revenues, sales and margins for its products, in particular its flagship "flash" memory, solid state drive (or, "SSD") product called "ZeusIOPS."  The price increase also came on the heels of STEC's announcement in July 2009 that it had entered into a unique supply agreement with its largest customer, EMC Corporation ("EMC"), which agreed to buy $120 million of the ZeusIOPS SSD product in the Q3 and Q4 of 2009. During this time, Moshayedi touted the sales growth of Zeus lOPS and STEC's other products, and said the supply agreement with EMC was "part of the expected growth" for STEC going forward, and was "further indication of future SSD growth and customers' acceptance of SSDs." SEC Findings and Allegations of Insider Trading. In order to take advantage of this run-up in the stock price, Moshayedi and his brother decided to sell a significant portion oftheir STEC holdings in a secondary offering of their shares.  The secondary offering was scheduled to commence on 8/3/09. the same day that STEC was to release its financial results for the Q2 of 2009, and announced announce its revenue guidance for Q3 ended 9/30/09 – revenue figures that would be compared to the "consensus" estimate forecasts of the industry analysts covering STEC.  However, shortly before the offering, Moshayedi learned 2 critical pieces of information that were not available to the public.

1. EMC's actual demand for STEC's ZeuslOPS product was lower than expected - contradicting Moshayedi's touts about future growth of the ZeuslOPS product and the importance of STEC's $120 million supply agreement with EMC.   In fact, EMC informed STEC that it would never enter into another similar agreement with STEC again.
2. Moshayedi also learned that EMC's actual demand for the ZeusIOPS product in Q3 would be $33-34 million -not nearly enough to ensure that STEC's Q3 revenue guidance could meet or exceed the consensus analyst estimates for that quarter.

As part of this scheme, Moshayedi entered into a secret side deal with EMC to have EMC commit to take $55 million of ZeusIOPS product in the 3rd quarter – far more than it actually needed – in exchange for an undisclosed $2 million price discount on the product.  He then announced 3rd quarter revenue guidance for STEC that met the analysts' consensus estimates.  This guidance, however, included the $55 million in orders from EMC – an amount that was about $21-22 million more than EMC's actual forecasted demand for the quarter, and that was only possible because of his secret deal with EMC. Obviously, disclosure of such information would cause the share price to dramatically fall.  And so, Moshayedi chose not to call off the offering or postpone the selling of shares he owned and his brother owned – 4.5 million shares each – which brought each of them profits of $134 million. In November, Moshayedi publicly disclosed the information about EMC's reduced demand - information he had in his possession back in August. SEC L.A. Reg'l Staff Credits. Investigation by Finola Manvelian and Douglas Kobayashi;  John Berry will lead the litigation. For further details, go to:  [SEC PR 12-141, 7/19/12] and [Order as to Huron Consulting Group].