Could the deal of the lifetime for Mobileye’s founders cost them a criminal indictment for insider trading?
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The U.S. Securities and Exchange Commission recently filed a lawsuit with the U.S. District Court in Manhattan, in which it alleges that the cofounders, Amnon Shashua and Ziv Aviram, provided insider information about one of the biggest deals in Israeli history. Intel announced in March that it was acquiring Mobileye for $15.3 billion. A source familiar with the case said that the two were recently questioned.
Mobileye responded, “The company does not comment on procedures of the SEC.”
The current lawsuit is an extension of the previous insider trading suit against Ariel Darvasi, a genetics professor at Hebrew University. The SEC alleges that Darvasi bought Mobileye shares shortly before the deal was announced, based on insider information, netting a profit of $427,000. Because of Darvasi’s health, the case was closed in exchange for him paying a fine of $850,000 without admitting guilt.
No criminal indictment or civil suit has been filed against Shashua or Aviram, but the serious suspicions against them are described in a civil suit against Lawrence Cluff and Roger Shaoul that the SEC filed with the District Court, also alleging insider trading. The two bought a sizable position in Mobileye in shares and options, reaping “realized and unrealized profits of over $925,000,” according to the suit.
The two are residents of Richmond, Virginia, and are not normally active traders, according to the complaint. Cluff owns a construction company and allegedly was unaware of Mobileye’s existence before January. Cluff’s brokerage account had been inactive for six years before he bought Mobileye shares. He allegedly received the insider information from Shaoul, an Israeli, who got his information from his brother James Shaoul, who lives in Israel (and is not a defendant in the case). The lawsuit details James Shaoul’s business and personal ties with the Mobileye founders, referring to him only as “Brother A” and describing him as “a physician specializing in non-surgical cosmetic procedures” in Jerusalem. A source familiar with the case identified James Shaoul as Brother A.
“Brother A has professional and personal relationships with Mobileye insiders, including the founders of Mobileye who directly participated in the negotiations that resulted in the tender offer,” the complaint reads. “Shaoul then disclosed this inside information to Cluff, explaining among other things that Shaoul’s family knew the founders of Mobileye and that the Mobileye founders recommended that their friends and family invest in Mobileye.”
When questioned by SEC investigators, Shaoul was unable to explain why he had bought options in Mobileye.Because the SEC has not formally sued Shashua or Aviram, the complaint refers to them as “the founders of Mobileye” or “Director A” and “Director B.” The SEC asserts the two breached their fiduciary duty and other obligations when they provided substantial information about the brewing megadeal between Intel and Mobileye, and that they knew – or should have known – that people who received the information would make illicit use of it and acquire Mobileye securities and options. More severely, the SEC alleges the information had been disclosed “for a personal benefit.” The SEC does not specify, but probably means the very act of helping their friends.
SEC links brothers' investments with Intel talks
The SEC links the timing of the two’s investments in Mobileye with developments in the company’s talks with Intel. Formal talks began January 27 to discuss the acquisition price, and all board members “learned of the potential transaction” by January 31. Cluff opened his first brokerage account with optionsXpress around January 29 at the behest of Shaoul. The accounts realized a gain of 388% over the course of the next six weeks.
The SEC detailed the relationship between James Shaoul and the Mobile cofounders. “Brother A is one of only 35 investors in OrCam, a privately-held company also founded by Mobileye founders Directors A and B,” it noted. “Director A and his wife have received treatment at Brother A’s clinic.” Furthermore, “Director A and his wife, and Director B see Brother A and Brother A’s family at periodic social gatherings.” Finally, “In October 2016, Brother A purchased a used car from Director A.”
Roger Shaoul had his own connections to Mobileye, according to the complaint, having studied science at Hebrew University from 1972 to 1976.
The lawsuit indicates that the SEC is considering prosecuting James Shaoul as well because he should have known his brother would use the information he allegedly passed on from Shashua and Aviram. Moreover, he should have known they only had the information they provided him because of their being on the Mobileye board.