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Broadcom-CA Deal Memo Spurs U.S. Stock-Fraud Probe

Ed Hammond, Christian Berthelsen, Neil Weinberg and David McLaughlin
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Broadcom-CA Deal Memo Spurs U.S. Stock-Fraud Probe

(Bloomberg) -- U.S. authorities have opened investigations into whether shares in Broadcom Inc. and CA Technologies Inc. were the target of a stock-manipulation scheme, according to people familiar with the matter.

The inquires are related to Broadcom’s announcement on Wednesday that lawmakers were given what purported to be a U.S. Defense Department assessment of national-security concerns surrounding Broadcom’s planned purchase of CA. That memo was falsified, Broadcom said, citing the Defense Department.

The Justice Department and Securities and Exchange Commission are both asking whether the memo may have been part of an effort to manipulate the companies’ share prices, the people said. Shares of Broadcom and CA fell Wednesday as the tie-up came under scrutiny. Senator Rand Paul called for a national security panel to investigate the $19 billion acquisition by Broadcom, a semiconductor maker, of software company CA, which the companies have said will close by the end of the year.

Read More: Broadcom Can’t Shake Scrutiny as Senator Wants Probe of CA Deal

Broadcom contacted the authorities about the memo and was told that investigations had been initiated, according to one of the people familiar with the situation.

They said the Justice Department’s probe is being handled out of the Southern District of New York, which has jurisdiction over Wall Street and often spearheads enforcement of stock manipulation and other securities fraud cases.

Broadcom’s shares rose as much as 3 percent in early trading in New York and were up 1.9 percent to 233.17 at 10:40 a.m. CA’s shares were little changed.

Representatives for the Justice Department and SEC declined to comment.

Authorities typically launch investigations following a public fraud claim such as the one made by Broadcom. The probes into the memo are preliminary and may not conclude that anyone attempted to manipulate Broadcom’s stock price.

A memo matching the one described to Broadcom was provided to Bloomberg anonymously earlier this week. The four-page document, which Bloomberg has not published, purported to be written by an official inside the Defense Department.

The author argued that Broadcom, while domiciled in the U.S., has deep ties to China. The author said that Broadcom’s purchase should come under scrutiny because CA makes software for strategic financial, energy and government applications. Axios has also reported, following Broadcom’s claims of a fraudulent memo, that it received such a document.

The Defense Department, in a statement, said: "Our initial assessment is that this is likely a fraudulent document."

Concerns similar to those outlined in the memo were raised by Senator Paul at a Senate hearing on Wednesday. Paul said later in the day he had sent a letter to Treasury Secretary Steve Mnuchin seeking a security review of the deal by the Committee on Foreign Investment in the U.S., or Cfius. Paul’s office said it hadn’t seen the memo in question and that it made its request out of national security concerns.

Treasury officials lead Cfius, whose members also include representatives of the Defense, Homeland Security and State and other departments. The committee previously reviewed Broadcom’s proposed takeover of Qualcomm Inc., which was blocked by President Donald Trump earlier this year.

The company has since moved its headquarters to the U.S. and says it isn’t subject to a Cfius review. Senator Paul said that the company’s close ties to China, where it derives the majority of its sales, merit a closer look.

Investors have been bearish on CA’s shares since the deal was announced earlier this year. About 25 million shares of the New York-based software maker have been borrowed and sold short -- a little over 8 percent of the company’s float -- according to research firm S3 Partners.

(Updates with share prices in sixth paragraph.)

--With assistance from Matt Robinson.

To contact the reporters on this story: Ed Hammond in New York at ehammond12@bloomberg.net;Christian Berthelsen in New York at cberthelsen1@bloomberg.net;Neil Weinberg in New York at nweinberg2@bloomberg.net;David McLaughlin in Washington at dmclaughlin9@bloomberg.net

To contact the editors responsible for this story: Jeffrey D Grocott at jgrocott2@bloomberg.net, Jillian Ward

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