SEC Accuses 2 Former Executives at Puritan
The Securities and Exchange Commission on Thursday charged two former top executives of Puritan Fashions Corp. with improperly withholding information on the company’s declining sales and earnings and accused four persons, including one of the executives, of violating insider trading laws.
The agency also said the case is the first in which a publicist has been a defendant in such a suit.
Puritan has been owned by Calvin Klein Industries since 1984. The allegations contained in the civil action filed in federal court here involved dealings that allegedly occurred in 1983, and none of the charges was in connection with the takeover of Puritan by Calvin Klein.
Andrew Rosen, Puritan’s former president, chairman and chief executive, and Samuel Rubenstein, the company’s former vice chairman, chief administrative officer and chief financial officer, were charged with “failing timely to disclose material corporate information that had rendered an outstanding public financial projection misleading and issuing a materially false and misleading shareholder letter.”
Specifically, the SEC said that in May, 1983, Rosen, publicly projected Puritan earnings of $3.25 per share and $300 million in sales for 1983.
By early September, the commission said, financial and marketing information “available to both Rosen and Rubenstein . . . indicated significant down-trends seriously jeopardizing the accuracy of the public projection.
“Rosen and Rubenstein not only failed to correct the misleading projection but also issued a shareholder letter . . . falsely stating that Puritan’s financial and sales performance for the second half of 1983 ‘is expected to continue at a favorable pace.’ ” It was not until October, 1983, the commission said, that the company informed securities analysts that there would be little or no improvement over 1982.
Rubenstein and Ronald Hengen, owner of R. F. Hengen Inc., a public relations firm, were charged with “tipping and trading upon material, non-public information regarding the financial condition of Puritan Fashions Corp.”
Ira Lee Sorkin, the SEC’s regional administrator in New York, said the case was unique. “This the first case we’ve ever brought against a public relations firm for tipping inside information about one of its clients,” he said in an interview.
The SEC said Hengen, on Sept. 6 and Oct. 5, 1983, “in the course of doing public relations services for Puritan,” learned of Puritan’s poor financial and marketing performance and told a stockbroker friend, Jack Erlanger, who then tipped another broker, Howard Harlow.
Based on the information, the brokers and their clients allegedly sold and sold short $2,082,845 million worth of Puritan stock. Erlanger is vice president of Federated Management Inc. and Harlow is president of Whale Securities Corp.
Erlanger has signed a consent decree, without admitting or denying the charges, and has agreed to pay $50,000, which made up the profits and commissions that he and his clients earned on the stock sales.
The SEC also alleged that Rubenstein, as co-trustee of Puritan’s pension trust fund, caused the fund to sell its holdings of Puritan stock, “avoiding a loss of approximately $177,000 to the Trust,” before Puritan’s declining sales volume was publicly announced.
Injunction Sought
The commission is seeking to require Rubenstein to forfeit $177,000 personally and also demands damages of an unspecified amount from Hengen and Harlow. It also asked for a permanent injunction that would subject all of the defendants to contempt charges if they violate security laws in the future.
Rosen’s late father, Carl Rosen, founded the firm more than three decades ago. Andrew Rosen, 29, is now president of one of Calvin Klein’s divisions. Rubenstein, who joined Calvin Klein when it acquired Puritan, has since left the company.
Lawyers for the defendants said Thursday that their clients denied the charges and would vigorously fight them in court.
