"It Doesn’t Look Good": Intel CEO In Jeopardy For Selling Stock After Learning Of "Staggering" Flaw

Six months after Intel was informed about unprecedented vulnerabilities in its chips that could enable hackers to access user data, and which has since emerged as the most "staggering" bug to affect the global semiconductor industry, company CEO Brian Krzanich was quietly selling shares and exercising stock options worth a total of $39 million, netting him nearly $25 million, according to regulatory filings.

The trade, which took place on Nov. 29, has been called "a highly unusual move" that risked attracting regulatory scrutiny, according to lawyers and analysts who spoke to the WSJ. The timing of Krzanich’s sale “is really odd,” said Dan O’Connor, a Ropes & Gray attorney specializing in securities law. "The timing, the size, the unusual nature compared to prior sales—that’s going to get this a lot of scrutiny."

While the trade took place under an SEC rule that allows officers and directors to prearrange sales of specific numbers of shares at particular times, the experts note that the rule prohibits insiders from setting up such transactions while possessing undisclosed information that might affect the stock price.

Which is precisely what happened in this case.

To be sure, Intel pleads that it followed all the rules: an Intel spokesman said Krzanich’s divestiture was unrelated to the chip security issue and the sale was based on a prearranged trading program. However, in a clear violation of SEC rules, filings show that Krzanich established the divestiture plan about a month before the trade, on Oct. 30, long after Intel learned of the chip vulnerabilities in June.

Oops.

The only potential saving grace here is if Krzanich did not know what was going on in his company for nearly half a year. For now, Intel hasn’t said when Mr. Krzanich was informed of the issue (and declined to provide further comment to the WSJ), although it is very much unlikely that the CEO had no idea what was taking place.

As the WSJ further notes, Krzanich’s trade stands out because it deviated from the CEO’s previous pattern of incremental sales of Intel stock, according to Ben Silverman, a researcher at InsiderScore LLC. In addition to exercising more than $28 million in options, the CEO sold nearly 50% of his unrestricted stock, reducing his unrestricted holding to 250,000 shares, the minimum set by Intel’s executive stock ownership guidelines according to the company’s most recent proxy statement. "That was an unusual move by a CEO", Silverman said.

"It’s not just that he sold stock knowing about the security issue," he said. "The size and selling behavior were unusual. Put those two elements together, and certainly on the surface it doesn’t look good."

* * *

What happens next is that the SEC will likely get involved.

Silverman and other securities experts said they would expect U.S. regulators to examine Mr. Krzanich’s trade to see if it violated insider trading regulations, although such cases are difficult to win.

A spokesman for the SEC declined to comment.

One potential angle of defense is pleading ignorance about the impact this big would have on future sales. To wit: "for an insider trade to violate the rule, the information held by Mr. Krzanich about the security vulnerabilities in Intel chips at the time he made the trade would have to be deemed material to Intel’s business, the securities experts said. Intel said last week that it didn’t expect the issue to have any material impact on its business."

Of course, any claim that the biggest flaw in Intel history would have little impact is disingenuous at best (and criminal at worst), so maybe the company - and executive - will look to settle. 

* * *

Other securities specialists are skeptical and note that companies generally would want to be careful in communicating with investors about a CEO’s stock sale in such circumstances.

“At first glance, it’s a very unusual type of thing that shareholders and directors would want a fairly tight explanation about,” said David Larcker, a professor of securities law at Stanford University. “It may be fine, but it’s the kind of thing you’d want to really understand and be transparent with shareholders about.

In other words, should INTC stock slide, activists will immediately emerge demanding Krzanich's scalp.

Some more details:

At the time of Mr. Krzanich’s sale, Intel was working with chip rivals and software partners to patch the security flaws, which were built into a variety of chips including virtually all Intel processors going back more than a decade. Intel was by far the company most affected by the problem, because it has dominant market share in chips used for servers and personal computers.

Intel had planned to announce the problem on Jan. 9, but it leaked earlier. Intel shares then dropped more than 5% combined on Wednesday and Thursday but edged up modestly on Friday.

Comments

NoDebt stinkhammer Jan 8, 2018 10:36 AM Permalink

EVERY FUCKING TIME!  What the fuck?  Do these guys think this shit isn't public information or something? 

No, what they think is that they'll win in court, so why watch the money walk out the door?  This is what you get when the SEC doesn't do shit for high-level prosecuting for a couple decades running.

Any bankers in jail for the GFC?  Nope.  So why should this sort of behavior be surprising?

Free Jon Fucking Corzine!

 

In reply to by stinkhammer

Mercury BennyBoy Jan 8, 2018 10:45 AM Permalink

At the time of Mr. Krzanich’s sale, Intel was working with chip rivals and software partners to patch the security flaws, which were built into a variety of chips including virtually all Intel processors going back more than a decade.

 

Fucking idiot.

A) CEO stock sales probably leave an audit trail - you know, because of computers 'n stuff...

B) As if Meltdown/Spectre won't eventually translate into a massive, accelerated hardware upgrade frenzy.

Better start lining up the paperwork for some backdated options to re-uber-rich yourself once $INTC is much higher...

In reply to by BennyBoy

FreeMoney 847328_3527 Jan 8, 2018 12:03 PM Permalink

Maybe take a look at the stock price on Oct 30, and compare with current stock price.

In Oct, qtrly were just published, stock was at multi year high.

Stock price today is basically the same.  

There is no question he knew about the problem.  I just dont see any great benefit to him in the aftermath of the announcement vs if he had continued to hold the stock.

There is also an order of magnitude issue here.  Dude sold 35million worth of options.  In the big picture of things, this guy is not the big fish.

 

In reply to by 847328_3527

ConnectingTheDots IH8OBAMA Jan 8, 2018 5:45 PM Permalink

Oh come on, this guy will never go to jail. He is a member of the protected class. 

He did his duty to the deep state and installed a backdoor into his company's chips so that the alphabet soup agencies can spy on all those "free people" who every 4 years get to choose who their masters will be.

The deep state protects their own and those who have served them, and boy did this guy serve them well.

 

In reply to by IH8OBAMA

Walking Turtle jcaz Jan 8, 2018 5:03 PM Permalink

..."guess he thought he was more important than his crew....."

If only someone had TOLD Himself:  The JANITOR is more important than Himself ever WILL be.

How so?  Count the keys on that CEO's ring.  Then do samesame on the Janitor's ring.

Seewoddimean?  But Himself went to college for counting beans, not keys...  And that is all.  -{;-)o[

In reply to by jcaz

j0nx Mercury Jan 8, 2018 11:08 AM Permalink

Yeah there may be a hardware upgrade frenzy but I'll be damned if I am paying for that shit. Intel owes me a processor, motherboard and ram from where I sit because that is what it would cost me to replace my CPU with a new one that doesn't have a flaw in it. I will see them in small claims court. They don't show then they get a judgment just like I would.

In reply to by Mercury

OverTheHedge quadraspleen Jan 8, 2018 12:08 PM Permalink

I once went to the City of London to have a meeting with a fairly high-level oil executive. I came away secure in the knowledge that I had NO IDEA what he did, other than have his secretary make pointless meetings to make it look like he was busy. Very weird, and a pain in the arse for anyone who actually lives 300 miles from London, and wants people to make decisions.

He was a very nice, affable yank, who had no idea what he was talking about, or how his company did business. I bet his annual salary is similar to my entire net worth, but for the life of me I couldn't tell you why.

In reply to by quadraspleen

any_mouse NoDebt Jan 8, 2018 10:46 AM Permalink

Maybe, just maybe, it has something to do with the tax law changes in 2018.

Is there analysis to show that tax chnages would not be a factor? No.

Wall Street paid out 2017 bonuses early because of tax changes for 2018.

Intel is like Microsoft. [Hence "Wintel"] Even when they ship a piece of crap, most purchasers keep buying the brand. What choice do they have.

 

In reply to by NoDebt

HRClinton stinkhammer Jan 8, 2018 2:43 PM Permalink

The JustUS Dept said that for now it has "not found the smoking chip evidence" to link the Intel CEO to unambiguous evidence of Insider Trading.

The $29,000,000 withdrawal was probably just a careless and reckless typo, meant to withdraw $290,000 for college education for his kids.

In reply to by stinkhammer

MusicIsYou Jan 8, 2018 10:33 AM Permalink

Uh oh, elites are eyeballing another sacrificial lamb who did nothing less than the same crooked shit they do. "Crucify him for the crowds!" "Who shall we release, Krzanich or Hillary?"