Banowsky Will Pay $750,000 in Stock Tip Case
A leading Los Angeles businessman and educator confirmed Monday that he has agreed to settle civil charges for initiating widespread insider trading in the stock of Thrifty Corp. in 1986.
William S. Banowsky, a former president of Pepperdine University and one-time Republican prospect for governor, said he will pay $750,000 in fines and penalties to the Securities and Exchange Commission under the settlement.
The settlement, which is expected to be finalized and made public soon, is the result of a nearly three-year investigation by the SEC regional office in Los Angeles.
Didn’t Buy Stock Himself
Banowsky, 53, who is also a former president of the Los Angeles Area Chamber of Commerce and two-time president of the University of Oklahoma, did not buy Thrifty stock himself and did not profit personally, according to Banowsky’s lawyer, James W. Mercer.
But, while serving on Thrifty’s board of directors, he violated securities laws by disclosing confidential information related to the pending acquisition to several people, including relatives, said two sources close to the investigation.
The people he told informed others, and a total of 18 traded on the information. They made $450,000 in profits by purchasing Thrifty stock during the week before its acquisition was announced and the price of the shares rose, according to the sources who spoke on the condition that their names be withheld.
The relatives informed by Banowsky “just killed this guy. They told everybody,” said one person close to the investigation. “He figured they’d buy a few shares for themselves and that would be it.”
Another source said that Banowsky was shocked by the extensive trading touched off by his disclosure and that he has cooperated fully with the SEC investigation.
The settlement ends the SEC’s investigation into all trading related to Banowsky’s disclosure, and no criminal charges will be filed, said one of the sources.
However, the SEC and the U.S. attorney’s office in Los Angeles are conducting a further investigation into other insider trading in Thrifty stock during the same period, according to two sources.
Banowsky was a board member of the Los Angeles-based drugstore and sporting goods chain in May, 1986, when it was acquired by Pacific Lighting, the parent of Southern California Gas. The company is now called Pacific Enterprises, and Thrifty is a wholly owned subsidiary.
The sources said Banowsky tipped off his relatives and friends after learning that a special meeting of the company’s board of directors was likely to be called. Other directors at the time said in interviews that they had been cautioned to keep the upcoming meeting secret.
The relatives and others who profited are contributing their trading profits to the settlement cost, one source said.
Irving M. Einhorn, the SEC administrator here, declined to comment.
Banowsky is executive vice president of National Medical Enterprises, a nationwide health-care company based in Los Angeles.
In response to Times inquiries, he said Monday: “Three years ago in the space of a single hour I made a mistake in judgment. It has caused a lot of grief for me and others. I sincerely regret it. I have cooperated fully with the SEC staff to resolve it. I am hoping that this gets it behind me.”
He declined to elaborate or identify to whom he passed the inside information.
The case is similar to the last big insider trading case brought by the SEC in Los Angeles. In a civil lawsuit filed last April, Carl N. Karcher, chairman and founder of the Carl’s Jr. hamburger chain, and 14 members of his family were accused of insider trading in the company’s stock.
Six defendants in the civil lawsuit against the Karchers agreed last month to pay fines and penalties to settle the case. A seventh was found guilty of insider trading in a civil case. Criminal charges of insider trading were filed last month against Alvin A. DeShano, the accounting director for the chain and the only non-family member involved. He has pleaded innocent.
The SEC office here has limited resources and is unable to bring a large number of insider trading cases. As a result, officials have said in the past, the office tries to target cases likely to attract publicity in order to achieve the greatest deterrence possible.
Banowsky, a native of Abilene, Tex., has been a prominent figure in Los Angeles since he became president of Pepperdine in 1971 at age 35.
During seven years in the post, the Church of Christ preacher raised $40 million for the expansion of the university to its present campus in Malibu and was widely hailed for improving its academic standing.
He also became active in conservative Republican politics, serving as a fund-raiser for Ronald Reagan when he was governor of California. Reagan appointed Banowsky Republican national committeeman.
In 1973, Banowsky was considered briefly as a Republican candidate to replace Reagan. He also was a prospect for the U.S. Senate.
In 1978, he became president of the University of Oklahoma. He left that post in 1982 to become president of the Los Angeles Chamber of Commerce, but resigned after six weeks and returned to the University of Oklahoma.
In 1985, he became president of Gaylord Broadcasting Co. in Dallas and later served as head of the Texas effort to win a $5-billion federal atom-smasher project. In October, 1988, he joined National Medical Enterprises as an executive vice president. He had been an outside director of the health-care giant since 1977.
Banowsky was an outside director of Thrifty in May, 1986, when the company was approached about a friendly takeover by Pacific Lighting. The deal was negotiated in two weeks of highly secret meetings between executives of the two companies, but it required approval by the boards of both.
Thrifty’s board was not told of the talks. However, on May 21, Banowsky was informed by the company’s chairman that he might have to attend a special board meeting.
According to his SEC agreement, Banowsky suggested to several people, including some of his relatives, that they consider buying Thrifty stock.
One of the sources said Banowsky was in Washington when he was alerted about the possibility of a board meeting, and he disclosed the confidential information in several telephone calls to friends and relatives in Dallas.
Mercer, Banowsky’s lawyer, said his client did not know the specific purpose of the meeting, but there had been rumors of a possible Thrifty merger. The deal was announced on May 28.
While Banowsky did not buy any stock or make any money, securities laws make him liable for profits earned on all trades based on information he provided illegally. The $750,000 represents profits of $450,000 earned by others on the trades, plus penalties and fines. The money is coming from Banowsky as well as the people who made the trades, according to one source.