According to charges filed by the U.S. Attorney’s Office, three Qualcomm Managers were charged with insider trading pertaining to the Qualcomm acquisition of Atheros, which was announced back in 2011. As we had reported the acquisition on January 5th, the New York Times actually broke the story late on January 4th, 2011 with the official announcement coming on the 5th. However, the men implicated in this insider trading scheme had all bought stock of Atheros hours prior to the announcement, which obviously would net them quite a bit of money since Qualcomm had planned to acquire Atheros to the tune of $3.1 billion.
Qualcomm had fully cooperated with the US Attorney’s Office in their probe of the insider trading and they ultimately charged three men for their roles in the insider trading. This included the immediate firing of all three men after they had conducted their own internal investigation into the charges of insider trading back in September of last year. The SEC (securities and exchange commission) charges that Derek Cohen, Robert Herman, and Michael Fleischli had learned through a series of work emails an meetings that Qualcomm was negotiating an acquisition of Atheros. And obviously, these men were made aware of this potential acquisition and made purchases of the stock as well as exchanged a series of very questionably timed phone calls, according to the SEC. In addition to that, the men quickly sold their shares of the company once the announcement had been made as it had resulted in a jump of Atheros’ stock price of about 20%, realizing a quick gain after a quick sell which likely set off some alarms.
The SEC and U.S. Attorney’s Office for the Southern District of California today jointly filed their charges, with the U.S. Attorney’s Office Filing the Criminal charges. According to the SEC, these guys didn’t even make that much money. In fact, only one of them made any serious profits. After they sold all of their shares of Atheros following the announcement, Derek Cohen had profited a fairly healthy $200,000, while Robert Herman made $30,000 and Fleischli a mere $3,000. The men have been charged by the SEC for violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint demands that they return all of their ill gotten gains plus prejudgment interest, financial penalties, and permanent injunctions.
According to the AP, Derek Cohen was arrested on Saturday at LAX upon his return from the Philippines and pleaded not guilty on Monday. His attorney John Kirby, stated, “We do not believe these charges are well-founded, and we believe Derek will be fully exonerated at trial.” However, Robert Herman still remains at large and his attorney, Paul Pfingst has already rejected all allegations. And Michael Berg, Michael Fleischli’s attorney, did not immediately respond to requests for comment.
What does this all mean for Qualcomm? Not much, really. They are a huge company with a lot of people and a lot of acquisitions. This was a very large one and clearly an important one to the company. However, Qualcomm has recently been the target of a lot of governmental probes from both US and Chinese authorities, including the Jing Wang charges from last year as well. It doesn’t seem to be indicative of a poor corporate culture within Qualcomm, however, I believe that Qualcomm has likely become much more selective about who knows about what acquisition or earnings based on these recent insider trading cases.