San Jose resident Manu B. Shrivastava is accused of receiving $446,724 in profits after he purchased call option contracts last March, according to the Securities and Exchange Commission, FBI and U.S. Attorney's Office, which filed the charges. The U.S. Attorney's Office has vowed to crack down on white-collar crime in the technology industry.
The Securities Exchange Act of 1934 outlaws insider trading--the purchase or sale of stock based on "material information" known by the company's board or employees but not by the public. Material information is any knowledge that may increase or decrease a stock price once it becomes known to the public, such as a takeover, divestiture, management coup or new product launch.
Shrivastava was not immediately available to comment on the case.
He allegedly purchased the contracts March 6, a day after graphics chipmaker Nvidia entered a contract to provide 3D computer graphics and multimedia systems for Microsoft's Xbox video game console.
Executives at Santa Clara, Calif.-based Nvidia sent a company-wide email heralding the new business with Microsoft and a second email requesting the information be kept confidential. But federal authorities allege Shrivastava acted illegally on the information.
"From March 7 through March 9, as rumors about the Xbox contract circulated on the Internet and in the press, Nvidia's share price soared 71.4 percent to a March 9 closing price of $100.30 (on a pre-split basis)," according to an SEC statement.
The company's shares jumped another 17.6 percent to $118 on March 10, when Microsoft formally announced the deal.
Four days after the agreement was reached, Nvidia's share price had more than doubled. Shrivastava allegedly sold his 100 call options during a three day-period ending March 10. Call option contracts give the holder the right to buy stock at a specified price up to a specified expiration date.
SEC officials are seeking all of Shrivastava's profits and interest, as well as a penalty fee up to three times the amount of the profits.
One count of securities fraud carries a maximum penalty of 10 years in prison, and one count of wire fraud can result in five years. Shrivastava may also face fines of up to $500,000, if convicted on these two counts.