Carl’s Jr. Founder Agrees to Settle, Pay Lump Sum in Insider Trading Case
Attorneys for Carl N. Karcher, founder of the Carl’s Jr. hamburger chain, and six of his relatives reached a tentative agreement with the Securities and Exchange Commission on Tuesday to settle a lawsuit accusing them of insider trading.
Under the agreement, Karcher and the others will pay an unspecified lump sum without admitting or denying the accusations of insider trading, attorneys said. The seven defendants will also agree to the terms of permanent court orders forbidding them from violating insider trading laws.
Attorneys for the Karchers and the Securities and Exchange Commission said they expected the settlement to be completed by the end of the week. It must then be signed by U.S. District Judge Edward Rafeedie.
Carl N. Karcher’s attorney, Wes Howell, said the 72-year-old founder and chief executive of Anaheim-based Carl Karcher Enterprises chose to settle the case to avoid both the emotional and financial costs of trial. He estimated that legal costs could have approached $1 million for all the defendants.
“The money we’re talking about is not going to make an enormous amount of difference” to Karcher, Howell said. “He was seeing his whole family being swept up into something that was going to take a few weeks out of their lives. He was seeing his company, with all of the principal executives, being subpoenaed . . . . And I couldn’t promise him that he’d win.”
The settlement was reached the day trial was to begin in U.S. District Court in Los Angeles. Attorneys discussed the settlement in Judge Rafeedie’s chambers for two hours early Tuesday before emerging with the tentative agreement.
“There is no admission of guilt and we were confident of a good outcome,” said Orville A. Armstrong of Los Angeles, lawyer for the six relatives. “We balanced the total expense against the whole process, including the slight risk of losing” the case.
Carl N. Karcher was on a Mediterranean cruise and unavailable to comment on the settlement.
Karcher, 14 family members and a company employee, Alvin De Shano, were accused in a lawsuit filed by the SEC in April, 1988, of avoiding losses of more than $310,000 in 1984 by selling Karcher securities before public disclosure of a 50% drop in earnings.
Unlike most of the defendants, neither Carl Karcher, his younger brother, company President Donald F. Karcher, nor their wives were accused of selling their own stock. Instead, the SEC alleged that they helped relatives avoid losses by tipping them through a series of phone calls and discussions about the expected drop in profits.
The defendants who agreed to Tuesday’s settlement are Karcher’s daughter, Catherine Karcher Everly, and her husband, Daniel Everly; daughter Margaret J. LeVecke; his daughter Barbara Karcher Wall (formerly Barbara Karcher Garrett); his son, a Catholic priest, Jerome Karcher, and his son-in-law, Donald E. Fergus Jr.
While the exact amount that the Karchers must pay has not been publicly disclosed, case attorneys confirmed that it is less than the amount they could have been fined had a jury decided that they violated insider trading laws.
A guilty verdict could have resulted in Carl N. Karcher personally being assessed a fine of three times the total amount of losses avoided, or $996,000. His six relatives could have been ordered to repay a total of $332,000. And the relatives could also have been required to pay up to $996,000 as penalties totaling three times the amount they allegedly avoided.
Since the SEC suit was filed, allegations against most of the defendants have been resolved.
In September, Judge Rafeedie found Carl Leo Karcher, son of the chain’s founder, guilty of violating insider trading laws. He was required to repay $10,500.
In February, Donald F. Karcher, his wife and four family members, without admitting guilt, agreed to pay $187,560 in fines and penalties to end the case against them.
Last month, Judge Rafeedie dismissed the insider trading charges against Margaret Karcher, Carl Karcher’s wife.
If the settlement is approved, only DeShano remains as a defendant.