sTec believes a small thing like an SEC insider trading action against its founder/incumbent director/former CEO who resigned under a cloud of an SEC investigation and litigation shouldn’t cause shareholder’s to deviate from its path.
sTec filed its proxy statement for its upcoming annual meeting. It will generally cover run-of-the-mill shareholder business, including election of directors. They are also planning to pack the board. We’ll see why in a moment.
As it turns out, Balch Hill Partners owns about 9.8% of sTec and intends to solicit votes for the annual meeting. It specifically opposes two directors who happen to be brothers, one of whom is the founder of the company. Why is Balch Hill picking on them?
It is because Manouch Moshayedi is under investigation by the SEC for insider trading. According to the SEC:
“The SEC alleges that as the Aug. 3, 2009 date for the secondary offering* approached, Moshayedi learned in the course of his CEO duties two critical pieces of nonpublic information indicating that EMC’s actual demand for the ZeusIOPS was lower than previously expected . . . Moshayedi responded by entering into a secret side deal with EMC in order to meet third quarter consensus revenue estimates . . . And even though EMC unequivocally informed Moshayedi on the morning of August 3 that it would not make further volume commitments, he withheld this critical information from investors prior to his secondary offering while at the same time touting in public documents the future growth of the ZeusIOPS product and the importance of the sTec-EMC $120 million agreement.”
Although his brother Mark was initially a subject of investigation, the SEC has stated that it does not plan to recommend enforcement action against him.** Balch Hill still sense the taint of wrongdoing and raises objections to his participation with sTec.
sTec offers a variety of reasons for its proposed slate, which includes Manouch and Mark. Among them, the board “takes its fiduciary duties to all shareholders very seriously.” Wow!!! Blockbuster revelation!!! They also tout the experience, industry knowledge, independence of independent directors, blah, blah, blah…
In addition, Manouch resigned as Chairman and Chief Executive Officer pending resolution of the SEC claims. Hasn’t he suffered enough? Mark was appointed as interim CEO.
In case you’re wondering, sTec has “an insider trading policy which, among other things, prohibits our executive officers, employees and directors from short-selling our common stock or engaging in transactions involving sTec equity-based derivative securities. In addition, our insider trading policy also prohibits hedging transactions involving our common stock.”
I guess that didn’t make Balch Hill feel any better about management’s slate.