San Diego, California - Two former Qualcomm sales directors have been charged with four counts of insider trading in an indictment unsealed Monday.
According to the indictment, Derek Montague Cohen and Robert William Herman were both directors of Qualcomm’s North America Sales Department. In addition to their day jobs, they were also part of an informal stock trading group, sharing tips and opinions about the stock market. According to the indictment, while still employed by Qualcomm, Cohen and Herman learned that Qualcomm (QCOM) was about to acquire Atheros Communications Inc. (ATHR), then a publicly traded technology company headquartered in California. Based on this inside information—and just one day before Qualcomm officially announced the acquisition—Cohen and Herman placed more than $500,000 in trades on various Atheros securities, including stocks purchases and option contracts. At the same time, Cohen allegedly covered a short position that he maintained, in violation of company policy, on Qualcomm stock.
Shortly after Cohen and Herman placed their trades, the New York Times’ DealBook blog leaked news of the impending acquisition, causing shares of Atheros to dramatically increase in value. Cohen and Herman then sold their securities, realizing a total profit of nearly $230,000. The indictment alleges that Cohen and Herman later falsely claimed to in-house Qualcomm lawyers and staff that they had only traded after reading a leaked news item—even though trading records, combined with records of the New York Times Company, show that this was impossible.
United States Attorney Laura E. Duffy said, “Insider trading is a threat to public companies and investors alike. This indictment should send a message throughout Southern California and beyond: the Department of Justice will not tolerate the manipulation of the securities markets for cynical and selfish personal gain.”
In a parallel action, the Securities and Exchange Commission today announced civil insider trading charges against Cohen and Herman.
Michele Wein Layne, director of SEC’s Los Angeles Regional Office, said, “As alleged in our complaint, Qualcomm placed trust in these sales managers who proceeded to exploit the confidential information shared with them and conduct insider trading for their personal gain.”
Cohen was arrested Saturday at Los Angeles International Airport at the request of the Federal Bureau of Investigation after he returned from an overseas visit to the Philippines. Herman remains at large.
Cohen was arraigned on the indictment in federal court in Los Angeles this afternoon; he entered a not-guilty plea and was to be released on a $100,000 bond. He is scheduled to appear before U.S. Magistrate Judge Ruben B. Brooks in San Diego on May 14, 2014, at 10:30 a.m. for a status hearing.
Indictments are not evidence that the defendants committed the crimes charged. All defendants are presumed innocent until the United States meets its burden in court of proving guilt beyond a reasonable doubt.
Defendants in Case Number: 14CR1202-JLS:
- Derek Montague Cohen
San Diego, California
- Robert William Herman
San Diego, California