2 Ex-Qualcomm Heads Accused of Insider Trading

The alleged illegal trading happened during the company's Atheros acquisition

 Two former Qualcomm sales directors have been charged with insider training, according to a federal court indictment unsealed Monday.

Derek Montague Cohen, 52, and Robert William Herman, 52, are accused of four counts of securities fraud for allegedly purchasing and selling off securities from a company later bought by Qualcomm.

They are also facing simultaneous civil insider trading charges from the Securities and Exchange Commission.

Cohen was arrested at Los Angeles International Airport Saturday as he was returning from the Philippines, but Herman remains at large, according to U.S. Attorney Laura E. Duffy.

At his arraignment in Los Angeles federal court Monday, Cohen pleaded not guilty and was released on a $100,000 bond.

According to the indictment, the two suspects were working in Qualcomm’s North America sales department in early 2011, just before the company acquired Atheros Communications, Inc.

At the same time, Cohen and Herman were part of an informal stock trading group that shared tips about the stock market.

The indictment says the two learned about the impending acquisition of Atheros through their Qualcomm jobs, so the day before the company made the announcement, they allegedly placed more than $500,000 in trades on various Atheros securities – including stock purchases and option contracts.

Cohen also covered a short position that he maintained, against company policy, on Qualcomm stock, prosecutors say. That short position was designed to increase its value only if Qualcomm stock decreased.

The next day, Atheros shares shot up in value when the New York Times’ DealBook blog leaked news about the acquisition.

Cohen and Herman are accused of then selling off their securities and gaining a nearly $230,000 profit.

According to the indictment, in-house Qualcomm lawyers and staff questioned the two men about the trades, and the suspects claimed they made the trades based on leaked news, not before it. Duffy said trading records show that is impossible.

If convicted of all four counts of securities fraud, the men face a maximum sentence of 20 years in prison and a $3 million fine.

They would also have to forfeit any money made from the suspected insider trading.

Last year, former president of Qualcomm’s Global Business operations Jing Wang was accused of using a secret brokerage account and a phony company to hide similar insider trading.

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