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The Five Dumbest Things on Wall Street This Week: July 27

4. STEC's Brotherly Larceny

Come on you Securities and Exchange Commission book-throwers. Take mercy on STEC (STEC) CEO Manouch Moshayedi. The man is clearly his brother's keeper, so what's the harm that he kept a little for himself too?

Okay. He kept a lot for himself and it looks like he did it illegally. But still.

The SEC filed a civil complaint against the solid state drive maker's chief executive late last week, accusing Moshayedi of violating insider trading rules in a secondary offering of his shares. According to the charges, Moshayedi unloaded a major chunk of his holdings, as well as shares owned by his co-founder brother, in August 2009 despite learning "critical nonpublic information" about a deal with EMC (EMC) gone sour that would likely have slammed the stock.

"Moshayedi did not call off the offering and abstain from selling his shares once he possessed the negative information unbeknownst to the investing public. Instead, he engaged in a fraudulent scheme to hide the truth through a secret side deal, and proceeded with the sale of 9 million shares from which he and his brother reaped gross proceeds of approximately $134 million each," says the SEC about Moshayedi, who according to his lawyer intends to vigorously defend himself.

Wow! $134 million each. Oh brother! Literally.

The part of the SEC allegation that really made us chuckle was when Moshayedi begged EMC brass to step up its third-quarter order to $50 million from $35 million ahead of a call with Wall Street analysts.

"Just tell me what you need, I knew asking you guys for a favor would go nowhere so I am now back at paying for favors. What is your price for keeping inventory for a week or two? I thought East Coast guys from Boston area were supposed to be nice," pitifully pleaded Moshayedi in an email.

Unluckily, just hours before that call, those "nice" guys from Boston treated Moshayedi like a Yankee fan in Fenway Park, telling him that they were no longer buying STEC products in volume. Nevertheless, Moshayedi did not inform Wall Street or his investors of that unfortunate fact until three months later in November. Once STEC's CEO did come clean about EMC's demand reduction, the stock price sank by nearly 40%, but of course by that time the Moshayedi brothers had already made their sales at far higher prices.

Hey, you know what they say. Bros before holders. Shareholders that is.

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