Donald Karcher and Family to Pay Stock-Case Penalties
Donald F. Karcher, president of the Carl’s Jr. hamburger chain, his wife and four family members have agreed to pay $187,560 in fines and penalties to end a federal lawsuit accusing them of insider stock trading.
In signing the agreements, which were approved by a federal judge Monday, Donald Karcher and his family did not admit or deny the insider-trading allegations made in a civil lawsuit filed in April by the U.S. Securities and Exchange Commission.
But the six defendants consented to permanent court orders prohibiting them from future violations of insider trading laws.
The agreements by Donald Karcher and his family do not affect insider trading accusations pending against his older brother, company founder Carl N. Karcher, seven of his immediate relatives and Alvin DeShano, director of general accounting at Carl Karcher Enterprises in Anaheim.
The SEC lawsuit accused Carl Karcher, who is chairman and chief executive of the company, 14 family members and DeShano of avoiding stock market losses of at least $310,000 in 1984.
Late that year, according to the lawsuit, Carl and Donald Karcher and their wives tipped other family members through a series of phone calls and discussions to upcoming news about a 50% drop in profits at Carl Karcher Enterprises.
The SEC’s civil suit seeks more than $1 million, including treble damages, from the remaining defendants. It is scheduled to begin a four-week to six-week trial on April 11.
All the defendants have consistently denied the SEC’s charges of insider trading.
But in September, one of Carl Karcher’s sons, Carl Leo Karcher, was found guilty of insider trading without a trial after a federal judge ruled that he had made admissions to investigators that clearly established his guilt in the case.
The younger Karcher was required to repay $10,500.
The SEC announced the consent agreements Monday, the same day that they were signed by U.S. District Judge Edward Rafeedie in Los Angeles.
The end of the civil lawsuit against Donald Karcher and his family does not preclude the possibility that the U.S. attorney’s office could also bring criminal charges of violating insider-trading laws.
The U.S. attorney’s office and SEC attorneys declined on Monday to say whether the civil settlement includes an agreement that Donald Karcher and his relatives will not be targets of a later criminal prosecution.
But Irving Einhorn, SEC regional administrator in Los Angeles, said it is common for his office to negotiate tentative civil settlements that hinge on the U.S. attorney agreeing not to prosecute.
In addition to Donald Karcher and his wife, Dorothy, those who signed settlement agreements are Doneta Ann Thomason, daughter of Donald and Dorothy Karcher, and her husband, David R. Thomason, as well as Rosemary Bruns, the sister of Dorothy Karcher, and her husband, William T. Bruns.
Doneta Thomason, who worked in the company payroll department, and her husband have agreed to repay $47,125, the amount of potential losses they allegedly avoided by selling their stock based on inside information. In addition, they have also agreed to pay a one-time penalty of $47,125.
The Brunses, who live in Huber Heights, Ohio, have agreed to repay $15,395 that they allegedly saved by selling stock they owned or controlled before adverse information was made public, plus a one-time penalty of the same amount.
Donald Karcher and his wife agreed to pay a one-time penalty of $62,520 under the Insider Trading Sanctions Act of 1984. That amount is equal to the potential losses allegedly avoided by the Thomasons and the Brunses. The SEC contended that Carl and Donald Karcher and their wives had violated insider trading laws because they tipped their relatives, not that they had avoided losses by selling stock.
Donald and Carl Karcher could not be reached Monday for comment.
Don Smaltz, the lawyer for Donald Karcher and his wife, said the one-time payment of $62,520 “is significantly less than what would be required to take the case to trial.” Smaltz added that his clients “certainly” still maintain their innocence.
Einhorn, the SEC’s regional administrator, hailed the settlement as a victory for the commission.
“The SEC considers this to be a vindication of its case. We got everything we asked for,” Einhorn said. “You would think there must be some doubt on their part (about) whether they’d prevail at trial because these are people that have the money, the wherewithal, to prosecute the case.”
Under the settlement, the company will have to disclose in public documents that Donald Karcher is under an injunction from the court for insider trading, Einhorn said, “but they can also disclose (that the order) was entered by consent without admitting or denying the allegation.”
