A federal judge on Monday refused to drop civil charges of insider trading against fast food magnate Carl N. Karcher and two members of his family.
Instead, U.S. District Judge Edward Rafeedie determined that the lawsuit against the founder of Anaheim-based Carl Karcher Enterprises should begin trial as scheduled on May 2.
“Whether circumstantial evidence is sufficient to warrant (a verdict against the Karchers) is a matter that should be presented to the jury,” the judge said.
Rafeedie’s ruling came one week after the judge dismissed the government’s civil case against Margaret Karcher, the wife of Carl N. Karcher. The U.S. Securities and Exchange Commission had asked Rafeedie to drop the charges against her.
Charges Were Dropped
Carl N. and Margaret Karcher are among 16 people accused of insider trading violations in a civil lawsuit filed by the SEC in federal court last April.
The suit accused Karcher family members and company accounting director Alvin A. DeShano of avoiding losses of at least $310,000 in 1984 by selling Karcher securities before public disclosure of a 50% earnings decline.
Unlike some other defendants in the case, Carl N. Karcher and his wife were not accused of selling any of their own stock or otherwise personally profiting from inside information. Instead, the SEC alleged that they helped their relatives avoid losses by tipping them through a series of phone calls and discussions to the upcoming earnings announcement.
The judge’s decision to drop charges against Margaret Karcher came after attorney Wesley Howell Jr. asked the judge to determine that there was insufficient evidence to continue the case against both her and Carl N. Karcher. He told the court last week there was no evidence that Margaret Karcher had done anything wrong.
Howell told the court that Carl N. Karcher, 72, had only given his children fatherly advice. He said that Karcher told his children he thought they had borrowed too heavily against their Karcher stock held in margin accounts and that they should do what their brokers advised. Brokerages often allow customers to use stock held in margin accounts as collateral for loans.
Howell said the Karcher relatives “had eight zillion reasons” to sell their stock. “The market had fallen dramatically, they had huge margin debts that were increasing, and their brokers were pressing them to sell,” he said in an interview. “These weren’t sales out of the blue. These people had very, very rational reasons to be selling.”
But according to Matteson, Karcher “was heavily involved in the investment activities of his children.” He said the children often sought Karcher’s financial and investment help. In some cases, Matteson said, Karcher loaned stock or money to his children to help them out of margin calls.
Lawyers for the Karchers also had asked Rafeedie to dismiss the civil case against one of Carl N. Karcher’s daughters, Catherine Karcher-Everly, and her husband, Daniel Everly. That request was denied Monday.