Carl’s Jr. Chief Accountant Charged With Stock Fraud
The chief accountant for the Carl’s Jr. hamburger chain was indicted Thursday on a criminal 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, also was one of 16 people accused of insider-trading violations in a civil lawsuit filed in federal court last April by the U.S. Securities and Exchange Commission.
The 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 said 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 a total of $187,560 in civil fines and penalties to end their involvement in the civil case.
Five months ago, without a trial, a federal judge found Carl Leo Karcher, a son of Carl N. Karcher, guilty of civil insider trading charges.
The remaining defendants, including DeShano, are scheduled to begin trial April 11 in the SEC lawsuit. All of the defendants in the SEC suit have said they did not violate insider trading laws.
DeShano, described by one associate as a soft-spoken accountant, is the only defendant 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.
To Seek Delay
He will ask U.S. District Judge Edward Rafeedie to order that he not begin trial in April with the other defendants to give him time to prepare for the criminal proceedings and because his case is based on different circumstances, Wiechert said. “There’s no one else involved in Al’s transaction,” the attorney said.
If convicted of the criminal charges, DeShano could be sentenced to 5 years in prison and fined a maximum of $250,000.
Although DeShano was the only defendant to be indicted, the Karcher family members accused in the SEC civil action could still face criminal charges.
“Everybody is subject to further criminal investigation,” said Irving Einhorn, SEC regional administrator in Los Angeles.
The indictment alleges that as director of general accounting at Karcher Enterprises, DeShano had access to the chain’s non-public financial data.
On Oct. 12, 1984, according to the government, he received a preliminary financial report indicating that the company’s earnings for the 4 weeks ending Oct. 5 would be 83% lower than expected, and “substantially lower” than the company’s earnings for the same period a year earlier.
Three days later, on Oct. 15, DeShano allegedly sold 1,725 shares of Karcher stock at $23 per share--allowing him to avoid losses when news of the company’s expected losses were made public on Oct. 23 and the stock price dropped.
In a prepared statement, Karcher Enterprises Chief Financial Officer Loren Pannier said the company understands that DeShano will plead not guilty.
“In the meantime, Al remains an active employee” of the company, Pannier said. “This matter should have no effect on the company’s business.”
A neighbor, William Bateman, said DeShano, an ex-Marine and father of five, loves his job at Karcher Enterprises and described him as a “workaholic.”
“He’s been my neighbor for 17 years, and if you went out to pick a neighbor you couldn’t pick a better one,” Bateman said.
Venita Baker, another neighbor, expressed similar sentiments. “I find it very hard to believe that he is the kind of person that would do something like that,” she said. “If anything, it was done out of ignorance, or he was told to by his employer.”
DeShano is scheduled to be arraigned Feb. 27. His case should go to trial in early May.
Tom Holliday, 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. The charges against DeShano “are totally independent and unrelated to Carl,” Holliday said. “There is no suggestion that there is any link between DeShano and Carl Karcher at all.”
SEC Case
DeShano and Carl Leo Karcher, the family member who was found guilty of civil insider trading charges 5 months ago, were the only two defendants in the SEC case who were alleged to have directly traded securities on the basis of non-public information to which they had direct personal access. Carl N. Karcher and the other defendants are accused of either tipping others or selling securities on the basis of tips they received.
DeShano, on the other hand, “was right there,” Einhorn said. “He had the books in front of him and he acted on that information. The rest who traded are either tippees or tippers, and they aren’t company employees.”
At the time he was indicted, DeShano had been negotiating with the SEC to reach a settlement of the civil charges filed against him, Wiechert said. “Those discussions obviously aren’t pertinent anymore,” he said.
The indictment marks the third time in recent years that criminal charges have been brought in the central district of California concerning alleged insider trading violations, a spokeswoman with the U.S. attorney’s office said.
Times staff writer Michael Cicchese contributed to this report.
