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Emulex Officers Cashed In Stocks Before Price Fell

Sale: The Costa Mesa firm's CFO says the trades occurred before clients began deferring orders.


When Emulex Corp. revealed last Friday that its customers were deferring orders, investors dumped the stock en masse--and shares plunged 48% on Monday. But some corporate insiders fared a lot better.

Less than three weeks earlier, eight officers at the Costa Mesa storage network firm sold more than $61 million of stock at prices ranging from $101.89 to $106.06 per share, according to regulatory filings. That's millions of dollars more than the stock would have fetched after last week's news.

Emulex stock closed at $42.81 on Thursday, up $4.06 on Nasdaq trading. At that price, the shares sold by the officers in late January would be worth about $25 million.

Paul Folino, president and chief executive, sold 200,000 shares Jan. 24 for $20.6 million, according to documents filed with the Securities and Exchange Commission. That's at least $12 million more than the same shares would have garnered this week.

Fred B. Cox, chairman of the board, sold 200,000 shares at the same price. The total number of shares sold by insiders in late January was 592,500.

In an interview Thursday, Chief Financial Officer Mike Rockenbach said the insiders were not yet aware of the company's potentially diminished outlook when they sold the shares. He said each sold a relatively small portion of their total company holdings.

"These deferrals happened after the sales were made," Rockenbach said.

Company insiders have all traded company stock over the last year or two, Rockenbach said, noting that Folino "has traded pretty much every trading window for the last several quarters."

The release of negative company news, so soon after the sales, could raise questions about whether company insiders were trading on information not yet accessible to the market at large. But Rockenbach said he has not received questions about the transactions from any regulatory agencies.

SEC spokesman John Heine declined to comment on the circumstances. "We are not going to advertise how close to the line people can get" in terms of trading before releasing negative company news, Heine said.

Shebly Seyrafi, an analyst at A.G. Edwards & Sons, said the timing of the insider sales was coincidental, adding that Emulex officials trade company stock throughout the year. Emulex officers sold about 1.03 million company shares during 2000, according to SEC data.

The company said Feb. 9 that customers had deferred orders that Emulex had previously expected to ship in this quarter.

Other insiders who traded in January included directors Don Lyle, Robert Good and Michael Downey, who sold a total of 160,000 shares. Kirk Roller, senior vice president of sales and marketing, sold 12,500 shares, and Karen Mulvany, vice president of business planning and development, sold 20,000 shares.

Bloomberg News was used in compiling this report.

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