A former auditor at Ernst & Young has been charged with illegally trading in shares of KLA-Tencor in advance of a takeover bid for the semiconductor equipment company by a client.
The U.S. Securities and Exchange Commission said Nima Hedayati, who worked for EY in Silicon Valley as a junior audit staff member, learned of Lam Research’s offer for KLA-Tencor at a meeting in October 2015 where he and other EY employees discussed Lam’s upcoming year-end audit.
Based on that information, the SEC said in a civil complaint, Hedayati acquired contracts for KLA call options and tipped his mother off to the impending $10.6 billion merger, realizing about $43,000 in illicit profits for himself and his mother after the deal was announced on Oct. 21, 2015.
To settle the charges, Hedayati agreed to pay more than $87,000, including disgorgement of the profits plus a penalty in the same amount. EY fired him after it discovered his alleged misconduct.
“Hedayati abused his important position of trust and responsibility by illicitly trading on an audit client’s nonpublic information in a quest for an easy profit, and it wound up costing him a lot more in the end,” Jina Choi, director of the SEC’s San Francisco Regional Office, said in a news release.
Lam made an offer to acquire KLA on Sept. 22, 2015 for $32 per share and 0.5 shares of Lam common stock and from Sept. 29 to Oct. 20, the companies engaged in merger talks.
At the October audit meeting, the SEC alleged, Hedayati “learned that Lam was going to acquire KLA” and during that month, also reviewed minutes from meetings of the Lam board of directors that made reference to the proposed merger.
He allegedly acquired KLA options contracts in his own brokerage account and that of his fiancée at the time while his mother allegedly bought 1,400 KLA shares. The stock rose 19% on news of the deal.
“Hedayati’s mother subsequently thanked Hedayati for the tip and sent him $2,000 as a ‘thank you’ gift,” the SEC said.