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The Journal Gazette

Sunday, January 14, 2018 1:00 am

Intel CEO's sale raises questions

Renae Merle | Washington Post

Two U.S. lawmakers are calling for an investigation into whether Intel's CEO, Brian Krzanich, improperly sold company stock after learning of a serious security flaw in the tech giants' microchips but before it was publicly disclosed.

Intel sent the technology industry scrambling this month when it announced that the microchips powering nearly every computer and smartphone have for years carried fundamental flaws that can be exploited by hackers. The flaws, dubbed Meltdown and Spectre, flow from designs that allowed computers to operate more quickly and efficiently.

“Security is job No. 1 for Intel and our industry,” Krzanich said at the CES industry trade show last week.

Now some lawmakers are questioning a large stock sale by the company's CEO late last year that was made before the news was made public, sending the company's stock price down.

“This is exactly the type of report of suspicious trading that the SEC routinely investigates as well as the DOJ,” said Brandon Garrett, a professor at the University of Virginia School of Law.

Intel learned of the security flaw in June and several months later, in late November, Krzanich exercised and sold nearly 900,000 company shares and stock options, making about $24 million, according to Securities and Exchange Commission filings. The sale reduced Krzanich's holdings in company stock by 50 percent to the minimum number of shares he's required to own, according to Intel corporate policy.

Sens. Jack Reed, D-R.I., and John Kennedy, R-La., have requested that the SEC and the Justice Department investigate the stock sale. The stock sale raises “concerns of potential insider trading,” they said in a letter last week to the agencies. “We request that you conduct a thorough examination of whether any insider trading laws were violated.”

The SEC and Justice Department declined to comment.

Intel, which has said there was nothing improper in Krzanich's stock sale, said they were aware of the letter. “We will cooperate fully with any governmental inquiries or investigations,” the company said in a statement.

Proving that the stock sale was improper could be tough, legal experts say. Federal prosecutors would have to show Krzanich's stock sale was motivated by his knowledge of nonpublic information and not a normal part of managing his financial portfolio, they said.

“Many such investigations ... do not proceed to any kind of civil much less criminal penalty,” said Garrett, the law professor. “A CEO would likely have received legal advice before making any trades of this type.”

The company said Krzanich's stock sale was part of a predetermined plan that legal experts say are usually established to shield corporate executives from accusations of insider trading. “Brian's sale is unrelated” to discovery of the security flaw, Intel said in a statement. “It was made pursuant to a pre-arranged stock sale plan (10b5-1) with an automated sale schedule. He continues to hold shares in-line with corporate guidelines.”

But Krzanich's stock sale had already grabbed the attention of InsiderScore, which advises large investors about stock sales by corporate insiders. Since 2015, Krzanich had methodically sold a small amount of stock on a monthly or quarterly basis, said Ben Silverman, a researcher at the firm. But previous sales did not exceeded 80,000 shares – a fraction of the hundreds of thousands of shares of stock and options he sold in late November, Silverman said.

“At a company with that type of profile when you see the CEO have such an outlier type of sale it is going to raise some alarms,” Silverman said.