Only Criminal Charge So Far in Karcher Case : Carl’s Jr. Executive Indicted for Trading Fraud
The director of general accounting for the Carl’s Jr. hamburger chain was indicted on Thursday on a charge of securities fraud through insider trading.
A federal grand jury returned a one-count indictment against Alvin A. DeShano of Orange, accusing him of receiving and using confidential corporate information to avoid a stock market loss of $7,107.
DeShano, 53, was one of 16 people accused of civil insider-trading violations in a federal lawsuit filed last April by the U.S. Securities and Exchange Commission. That SEC lawsuit accused Carl N. Karcher, chairman and chief executive of Anaheim-based Carl Karcher Enterprises, 14 family members and DeShano of avoiding stock market losses of at least $310,000 in 1984.
DeShano could not be reached for comment Thursday.
His attorney, David M. Wiechert of Irvine’s Layman, Jones & Dye law firm, said his client’s “integrity and honesty are above reproach. . . . He never would have intended to deceive or defraud anyone. Obviously, we intend to vigorously defend these charges through trial, if necessary.”
Wiechert stressed that DeShano did not rely on any inside information when he traded shares of Karcher stock. “He had legitimate reasons for diversifying his investments and assets at the time of the sale that were wholly unrelated to the information” that DeShano allegedly used.
Earlier this week, six of the defendants in the SEC lawsuit--including company president Donald F. Karcher--agreed to pay $187,560 in civil fines and penalties to end their involvement in the SEC case.
The remaining defendants in the civil case--including DeShano--are scheduled to begin trial on April 11 in the SEC lawsuit. All of the defendants in the SEC suit consistently have said they did not illegally trade stocks.
DeShano, described by those who know him as a soft-spoken accountant, is the only one of the defendants in the civil case who has been criminally charged with insider trading. The criminal indictment is a separate proceeding from the civil lawsuit, although both stem from DeShano’s stock trades in October, 1984.
5-Year Prison Term Possible
He will ask U.S. District Judge Edward Rafeedie to order that he not begin trial in April with the other defendants, Wiechert said.
If convicted of the criminal charges, DeShano could be sentenced to five years in prison and fined a maximum of $250,000.
The indictment says that as head of Karcher Enterprises’s accounting department, DeShano had access to the chain’s non-public financial data and profited from it.
Three days after seeing a confidential company report showing that earnings for the four weeks ending Oct. 5, 1984, would be 83% lower than expected, the government said, DeShano sold 1,725 shares of Karcher stock. The sale allowed DeShano to avoid losses of $7,107 when news of the company’s expected losses were made public and the stock price dropped.
In a prepared statement, Karcher’s Chief Financial Officer Loren Pannier said the company has been told that DeShano will plead not guilty. “In the meantime, Al remains an active employee of the company. This matter should have no effect on the company’s business,” Pannier said.
An attorney for Carl N. Karcher said the DeShano indictment will have no effect on the pending SEC civil suit against his client and immediate relatives.
