A Los Altos man arrested last week on charges related to insider trading allegedly traded his company’s stock based on nonpublic information he obtained on the job.
The U.S. District Attorney’s office charged Peter C. Chang, 59, with securities fraud and fraud in connection with a tender offer, estimating that he generated illegal profits in excess of $800,000.
Chang is former CEO, president and board chairman of the Sunnyvale-based Alliance Fiber Optic Products. AFOP manufactures fiber optic components. Corning Inc., an industrial manufacturer of glass and ceramic products with headquarters in New York, acquired AFOP – a publicly traded company – in April 2016.
The federal complaint alleges that Chang acquired confidential information about AFOP’s financial performance and potential strategic transactions before they were publicly announced, including the news that AFOP was in negotiations to be acquired by another company.
According to the complaint, corporate policies and agreements limited Chang’s ability to trade AFOP securities and required him to keep certain corporate information confidential. Nevertheless, the complaint alleges, Chang controlled and accessed two brokerage accounts in the names of his wife and his brother, and Chang bought and sold AFOP stock in these nominee accounts.
Through this trading, the complaint alleges, Chang avoided losses and made profits using information he gathered in his positions with AFOP.
For example, the complaint alleges that Chang learned AFOP’s revenues in the third quarter of 2015 would be lower than expected due to a decline in customer orders.
The complaint alleges that Chang sold more than 152,000 shares of AFOP stock in the nominee accounts in advance of the earnings announcement Oct. 28, 2015. In this way, the complaint alleges, Chang avoided more than $500,000 of losses.
If convicted, Chang faces a maximum statutory penalty of 20 years in prison and a fine of $5 million per count.
In a separate civil action, the U.S. Securities and Exchange Commission filed civil charges against Chang, alleging that he engaged in insider trading and failed to report stock transactions.