Tentative Accord Reported on Karcher Inside Trading : Attorneys Tell of One ‘Hurdle’
Attorneys for Carl N. Karcher, founder of the Carl’s Jr. hamburger chain, and six of his family members reached a tentative agreement today to settle allegations of illegal insider stock trading.
Defense lawyers and attorneys for the Securities and Exchange Commission said an unspecified “hurdle” still must be resolved before the agreement is final. But both sides said they are optimistic that the civil case would be settled by early next week.
The agreement came on the same day that their trial was to begin in U.S. District Court in Los Angeles.
Carl N. Karcher, 14 family members and a company employee were accused by the SEC in April, 1988, of avoiding losses of at least $310,000 in 1984 by selling Karcher securities before public disclosure of a 50% drop in earnings.
Carl Karcher and his younger brother, company President Donald F. Karcher, and their wives were not accused of trading stock, but they were accused of tipping other family members, through a series of phone calls and discussions, about the expected drop in profits.
Since the SEC suit was filed, allegations against many of the defendants have been resolved.
U.S. District Judge Edward J. Rafeedie issued a summary judgment in September against Carl Karcher’s son, Carl Leo Karcher, finding him guilty of insider trading. In February, Donald Karcher, his wife and four family members agreed to pay $187,560 in fines and penalties to end the case against them. And last month, the judge dismissed the government’s civil case against Carl Karcher’s wife, Margaret.
Terms of the latest settlement were not released, but it was said to require that the defendants repay money that the SEC alleges was gained through insider trading.
Carl N. Karcher, 72, was not in court today. His lawyer, Wesley G. Howell Jr., said he was on a Mediterranean cruise until Saturday but could be reached to discuss the settlement.
“It looks like the case will be settled,” Howell said, adding that his client sought a settlement because he “has come to appreciate the costs of trial.”
SEC attorney John C. Koutsos said the agreement must be approved by SEC commissioners in Washington, D.C. The Karcher family attorneys said they need to consult further with their clients.
“There are conditions to be fulfilled,” Howell said. “We don’t have the approval from clients on both sides.”
The agreement, reached after two hours of discussions in Rafeedie’s chambers, provided for compromises on both sides. It did not give the SEC all the relief it sought. If the SEC had won at trial, it could have won an injunction against the defendants as well as orders requiring Carl Karcher to pay up to $996,000.
Additionally, the six relatives could have been required to repay $332,000 in losses they avoided by trading on inside information, plus a penalty of three times that amount.
Alvin A. DeShano, director of general accounting at Karcher Enterprises, was the only one of the civil case defendants to face criminal charges of securities fraud through insider trading. DeShano, 53, of Orange, will not stand trial for the civil charges until the related criminal case is resolved. His criminal trial is scheduled to start May 23.
