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SEC Loses Latest Insider-Trading Trial to Former STEC CEO

The U.S. Securities and Exchange Commission, in a third insider-trading trial defeat in the past year, lost its lawsuit claiming STEC Inc.’s former chief executive officer made $134 million by selling stock before divulging a sales setback to investors.

Federal jurors in Santa Ana, California, returned their verdict on the first day of deliberations.

The SEC claimed Manouchehr Moshayedi, who co-founded the maker of computer-storage cards with his two brothers in 1990, sold 4.5 million STEC shares in an August 2009 secondary offering after learning that a major customer, EMC Corp., would scale back purchases of the ZeusIOPS flash memory product.

“The justice system works,” Moshayedi said after yesterday’s verdict. “The jurors listened to the evidence. I am grateful to them.”

The verdict was the SEC’s third loss since October out of four such cases to go to trial. Wynnefield Capital Inc.’s Nelson Obus defeated the agency last month in a Manhattan court in a suit claiming he relied on an illegal merger tip to make $1.3 million in 2001.

In October, a jury in Dallas decided that Mark Cuban, the billionaire owner of pro basketball’s Dallas Mavericks, didn’t engage in insider trading in 2004.

The agency last month won a case in Manhattan against Michaels Stores Inc. founders Samuel and Charles Wyly, who were accused of illegally hiding their stock holdings and evading trading limits. The verdict leaves Samuel Wyly and his late brother’s estate potentially liable for as much as $550 million. That case took the regulator more than a decade to bring to trial.

SEC Enforcement

“We respect the jury’s verdict but will continue to aggressively enforce the law when we believe the evidence supports the allegations,” John Nester, an SEC spokesman, said yesterday in an e-mailed statement.

Moshayedi’s lawyer, Patrick Gibbs, told the jury in his closing statement that a $55 million side deal with EMC, which the SEC alleged was used to hide a revenue shortfall, was meant to bring uniformity to the operations process because EMC was prone to waiting to the end of quarters, making it difficult for STEC to make accurate forecasts for analysts.

The deal wasn’t meant to ensure the success of the secondary offering, in which Moshayedi sold shares, according to Gibbs, but to “avoid the chaos of EMC ordering late in the quarter.”

STEC, based in Santa Ana, California, was acquired by Western Digital Corp. last year.

The case is Securities and Exchange Commission v. Manouchehr Moshayedi, 12-cv-01179, U.S. District Court, Central District of California (Los Angeles).

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