Former Reagan Aide Acquitted of Fraud Charges in Stock Deal
Thomas C. Reed, a former adviser to President Reagan, was acquitted Monday of charges that he used inside information to make a $427,000 profit in stock options, then fabricated documents to cover up his actions.
A federal court jury found Reed not guilty of one count each of securities fraud, wire fraud and obstruction of justice. Conviction would have carried a maximum of five years in prison on each count.
Reed, 51, was secretary of the Air Force under President Gerald R. Ford before he became a special national security assistant to President Reagan in 1982. He resigned in 1983 as criticism of his 1981 options trading mounted.
Confidential Information
The prosecution contended that Reed improperly used confidential information from his father, Gordon Reed, to make a fortune in just two days of trading in options on Amax Corp. stock. Gordon Reed was a member of the company’s board of directors.
Reed bought options for $3,000 on March 4, 1981, giving him the right to buy 50,000 shares of Amax stock at $50 a share any time before March 20 of that year, according to evidence presented at the trial. At the time, such options appeared all but worthless because Amax stock was selling at just $38 and had been dropping in price.
The next day, trading in Amax shares was halted, and the company announced that it had received and rejected a $78-a-share buy-out bid from Standard Oil of California.
Options Sold for $430,000
On March 6, trading was resumed, and the price of Amax shares, as well as the price of options to buy them, soared. Reed sold his options that day for $430,000, placing the proceeds in newly opened brokerage accounts under the names of eight friends, relatives and associates.
The prosecution insisted that Reed had been told by his father of the impending buy-out bid and traded on that knowledge. Such transactions are a violation of laws forbidding “insider trading,” which are designed to prevent executives with access to important, secret information from taking advantage of investors who lack such knowledge.
Reed and his father, whose sworn deposition was admitted as testimony, insisted that the son did not know of the Standard Oil of California offer in advance. Reed testified that the decision to buy the options was the result of his own research.
