Two former Qualcomm Inc. sales executives were charged with four counts of insider stock trading in a federal indictment unsealed May 12.
According to the indictment, Derek Cohen and Robert Herman, both former directors in Qualcomm’s North America sales department, were also part of an informal stock trading group that shared tips and opinions on the stock market.
In November 2010, the vice president of the company’s sales department notified the men and other members of the department that Qualcomm was planning a significant acquisition, according to the indictment.
In January 2011, the two allegedly learned from sources within Qualcomm that the purchase the company was considering was Atheros Communications Inc., a Silicon Valley-based maker of Wi-Fi semiconductor chips.
Based on the information, and just one day before Qualcomm announced its $3 billion acquisition publicly, the two men placed more than $500,000 in trades on various Atheros stock and option contracts, the indictment states.
Cohen also covered a short position that he had on Qualcomm stock by placing a limit order on it. By shorting a stock, investors sell stock that they are borrowing in hopes the market price decreases so the money is repaid at a lower price, resulting in a profit, according to the indictment.
After news of the purchase was announced, the price of Atheros stock rose, and both men sold their shares. Cohen sold his shares soon after and made a profit of about $200,000. Herman realized a profit of nearly $29,000 on his investment, the indictment said.
The indictment alleges Cohen and Herman later falsely claimed to Qualcomm’s in-house lawyers and staff that they only made the stock trades after reading about the deal in a New York Times blog. However, trading records and records of the New York Times show that this was impossible, the indictment states.
In a parallel action, the Securities and Exchange Commission announced civil insider trading charges against both Cohen and Herman.
Last year, Qualcomm former executive Jing Wang was indicted for insider stock trading, also involving the Atheros acquisition. Wang and his stock broker, Gary Yin, along with Wang’s brother, Bing Wang, allegedly conspired to buy stock in both Atheros and Qualcomm, with the advance knowledge of the acquisition. Wang allegedly took profits from the trades of about $250,000.