News Scrapbook 1989

Carlsbad, CA (San Diego Co.) La Costan (Cir. W. 5,000)

San Diego, CA (San Diego Co.) San Diego Business Journal (Cir. W. 7,500)

San Diego, CA (San Diego Co.) San Diego Business Journal (Cir. W. 7,500)

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Carlsbad, CA (San Diego Co.) La Costan (Cir. W. 5,000) R Oceanside, CA (San Diego Co.) North County Blade Tribune (Cir. D. 29,089) (Cir. S. 30,498)

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San Diego CA (San _Dieg~ Co.) Evening Tribune (Cir. D. 123,06 4 ) A

Carlsbad, CA (San Diego Co.) La Costan (Cir. W. 5,000)

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Oceanside CA (San Diego Co.) North County Bl~de Tribune (Ctr. D. 29 089) (Cir. S. 30,498)

• . • from 7 to ;a,n,ng videotaping on opment Inc. will sponsor a semi• um. Fee $3~-m. at the University o~nag,~g high performing t~am~ May_z t · · Reservatio17s:-143;; an Die ~o Manchester Aud1ton- rom 9 to 1 f a.m. . -~. 'ihe • or~gram will be repeated

San Diego, CA (S n Diego Co.) 1.:v •n1n9 Tribune (C,r. D. 123,064) 2 19 9

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San Diego, CA (San Diego Co.) Daily Transcript (Cir. D. 10,000)

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JU~'• P. C. 8 . (The USD Center For Public In- terest Law 1s setting its sights on improving child abuse prevention and state child care services. It will announce this morning it has formed the California Children's Advocacy Institute with more than a $400,000 grant from the We• ingart Foundation. The institute will be based here and run by Ro- bert Fellmeth, with offices in San Francisco and Sacramento. The Sacramento outlet will house a state lobbyist, t~e ~cond lob.9,v~ in the state on child issues. .. ·--~-- Ert. 1818 . ..

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San Diego, CA (San Diego co.~ San Diego eusmess Journal lCir. W. 7,500)

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/4en'a basketball - Neal Meyer, a 6-foot-3, 185-pound guard fr?m Chaparral High (Scottsdale, ~nz.), has signed a national letter-of-mtent to attend USO this fall, Coach Hank Egan announced. b~

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cate in ,nternat,ona through May 24th at p m Wednesday evening\erence Center Each Manchester Execu~v~,~:r:nt top,c. The cost for session will cover h h ncludes materials Or all sessions IS $2 15 W \ ~ackie~f~e~e_;.ll at 260· For more information ca ~? L ,4

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3.875 Security

ContiJJued From AA-1 'J-'1 S- cover damages caused by the prac- tice. Despite the increased penalties, securities experts say, insider trad- ing remains difficult to eradicate. "They're gradually tightening the noose," says C. Hugh Friedman, pro- fessQr of law at the University of San Diego. "I still suggest there's lots of rooin to get outside of the noose." Only a handful of insider-trading cases are ever prosecuted each year. That is because the charges are diffi- cult to prove and regulators are woe- fully short of staff and funds. Authorities worry that the public perception of widespread insider trading is undermining confidence in the market. Says Howard Homonoff, an attorney for the Congressional subcommittee that drafted the tight- ened sanctions, "Small investors feel it's a rigged game." Laws prohibiting insider trading are aimed at keeping the game fair for all investors in publicly traded co~panies, according to Professor Fri ::.n. or example, he law for- bids officers who learn that their company will soon be acquired from buying shares, knowing the price will go up, or from tipping others. "They are buying from other shareholders, who if they knew the same information, would not have sold," Friedman says. "If the share- holders found out the people they sold to were officers, or friends of officers, they have every right to be angry. If I'm a shareholder, you (as an officer) owe me a duty of loyalty." Unfortunately, say securi\ies ex- perts, some people are swayed by ~he once-in-a-lifetime chance to making a financial killing. "The opportunity to make 300 per- cent on your money in two weeks if you trade on inside information can be irresistible," says William I:.erach, a San Diego securities attorney. "The opportunity for profit is so great, and the odds of being caught are so small, it's worth the chance." Securities experts say it is a com- mon misconception that insider trad- ing is harmless, a victimless crime. Insists Lerach, "Insider trading harms somebody every single time it occurs." Irving Einhor top admi~istrator

Pacific bid announced 12-22

tion's stock exchanges, the New York, American and NASDAQ. They are programmed to go off if trading in a given stock is unusual. The exchanges then might call the company to determine the reason for the activity. If an announcement is pending, the exchange can halt trad- ing until the news is public. That is what happened- with South- west Bancorp. of Vista late year. On Dec. 7, officials at the American Stock Exchange called the company to inquire why its stock had jumped that day from 2.375 to 2.875. Company President Frank Mer- cardante told AMEX that the bank- ing company had received an unsoli- cited offer the day before from Wells Fargo. AMEX then halted traded while Southwest made an announce- ment. On Dec. 21, the price of Southwest rose 25 cents. After trading hours that day, the company received an- other unsolicited offer, this time from Security Pacific. Southwest an- nounced the offer, later accepted at $6 per share, immediately the next day. Even though Southwest was quick to make the news public, the stock still had a quick run-up in price. There are just too many people with inside know edge involved when a merger is discussed, said Mercar- dante. "When you're talking about differ- ent accounting firms, law firms, in- formation can leak to junior mana- gers," Mercardante says. The rise in Pancretec stock in March apparently did not set off alarms at NASDAQ, according to an , official there. It was noted at local brokerage firms, however. Irving Katz, an ana• lyst with Thomas Greenan Dieg 1 Securities, recalls hearing a rum that Pancretec was about to t bought. He is convinced that wo· leaked out somehow, but he is equ1 ly convinced that if insider tradi occurred, the perpetrators will 'f be caught. "It's very difficult to track all I trades," he says. "It'll turn out I someone told his mother-in-law she used a different name. Nothi1 going to happen, mark my word." ' /

fell to $14.75 with tlie earnings news. Company insiders are prohibited from selling stock any time they are privy to non-public information that could drive the stock down. Imperial Corp. of America, S:i-n Diego parent company of Imperial Savings & Loan Association, ac- knowledged last month that it was investigating whether two top execu- tives had improperly sold stock prior to announcing a major earnings loss. The two executives, who denied they knew of the pending negative news, sold their stock in November and De- cember at $9 or more. When the fourth-quarter earnings loss was re- leased Jan. 27, the price had fallen to $7. Imperial said it had undertaken the investigation to determine if the trades put the company at risk of being sued. Under the newly expanded laws on insider trading, shareholders have greater latitude to sue companies whose officers engage in such activ- ites. But the laws have not yet been tested. In addition to giving shareholders greater rights, the new federal law gives the SEC tougher sanctions. Maximum jail terms have been raised to 10 years and fines per viola- tion were increased from ,000 to $1 million. In an effort to stop collu- sion in insider trader by brokerage houses, the law also makes employ- ers liable if they fail to adequately monitor employees. The state also has clamped down. Last year, the Legislature enacted new provisions that allow sharehold- ers to seek treble damages if they can prove a company's officials en- gaged in insider trading, according to Friedman, who served on an advi- sory panel that helped shape the leg- islation. But attorney Lerach, who also sits on the same panel, describes the changes as "an illusionary remedy." Even with treble damages, the amount of profit generated by most insider trades would be too small to support a class-action lawsuit, he says. The first defenses against insider trading are led by computerized alarm systems installed at the na-

of the Securities and Exchange Com- mission's regional office in Los Ange- les, says that the prosecution of Boe- sky and others cases had only a brief "chilling effect" on insider trading. "Memories are short," Einhorn says. "I don't see any slowing down on the number of cases. I still see prices running up for no apparent reason, and shortly thereafter there's an announcement. Those cases are impossible to crack unless people talk." Einhorn said insider trading in stock of a small company sold over the counter is easy to accomplish without detection. When told of Pan- cretec's recent 50 percent run-up in price, Einhorn says. "There's insider trading there and you know it. But I don't know if I can prove it." The SEC's Los Angeles office, which oversees California, Arizona, Nevada and Hawaii, files only four to six civil cases a year involving insid- er trading. "We investigate to the degree we can with the resources we have,'' ex- plained Chiles Larson, a spokesman for the SEC's Washington, D.C., head- quarters. Civil prosecutions of insider trad• ing have accounted for about 10 per· cent of all cases brought by the SEC in recent years - a total of 36 in 1987. More serious cases, such as Boesky and Milken are referred to the U.S. Attorney's office for crimi- nal prosecution. The largest recent case of insider trading in California was brought last year against Carl N. Karcher, founder of the Carl's Jr. restaurant chain, and 14 family members and company officers. The SEC is seek- ing civil damages of more than $2.5 million from 13 of the defendants, some of whom have settled the charges, and is assisting in the crimi- nal prosecution of a company ac- countant. The SEC claims that in 1984 Karcher advised members of his family to sell shares in Carl Karcher Enterprises several days before the company issued' a poor earnings re- port. The defendants allegedly sold large blocks of stock at $21 to $23 dollars per share, shortly before it

13.625 Abbott bid 3-17

2.875 Trading halted by Amex 12-7

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vest. There really are no secrets from money." With a case like Pancretec's, in which a major announcement was preceded by unusual trading activity, stock exchangi> autnomt · to: de · if insider trading occurr . Insider trading is the illegal trading of stock based on important information that is not avail- able to the public - such as a pending takeover. Indeed, the ·ational Association of Securities Dealers, which regulates NAS- DAQ - the nation's major over-the- counter stock exchange - is conducting a routine review of Pancretec's pre-an- nouncement trading. Pancretec presi- dent James Yarter referred inquiries about the trading to the association, say- ing only, "As far as I know all the neces- sary precautions were taken." Compames have more incentive than ever to take precautions against insider trading. The unprecedented wave of mergers and cquis lions in the 1980s set the scene for major insider trading scandals, such as t • Ivan Boesky and the Michael Milken cases, and for the popular movie of insider greed, "Wall Street." Respond- ing to growing public awareness of the problem, the nation's legislators last year toughened the laws against insider trading. Congress established stiffer criminal penalties and broadened the scope of persons who an be charged with insider trading In tfornia, lawmakers ex- panded the 1ghts of shareholders to re- Please see 'IUDF.S: ..U-2, Col. l

Tribune photo by J;imes Skovmand

Friedman: "tightening noose" rumor, but more often than not it eems clear that someone with Inside knowl- edg ha acted upon it "Th thiDp just get out," says Larry Selwitz, an analyst with Cruttenden & Co of Newport Beach 'It s distressing, but It happens Very few companies are abl to keep information close to the