Fraud Trial Set Today for Karcher Accounting Director
The accounting director of the Carl’s Jr. hamburger chain is scheduled to go on trial today in Los Angeles on criminal charges of securities fraud through insider trading.
Alvin DeShano of Orange, 54, has been accused in a one-count indictment of avoiding $7,107 in potential losses by selling Carl Karcher Enterprises stock based on confidential corporate information. The sale occurred on Oct. 15, 1984.
If convicted, DeShano could be sentenced to 5 years in prison and fined as much as $250,000.
Only Criminal Charge
Of the 16 people accused by the government last year of illegally trading in securities of Anaheim-based Karcher Enterprises, DeShano is the only one to be charged criminally so far.
Described by acquaintances as a soft-spoken family man, DeShano is director of general accounting at Karcher Enterprises. He has been an employee of the company for 15 years.
After the trial before U.S. District Judge A. Wallace Tashima, a jury will be asked to decide whether DeShano knowingly sold Karcher securities on the basis of information not available to the general public. Federal law prohibits any trading based on such knowledge.
The criminal charge is an outgrowth of a civil lawsuit filed in federal court last April by the U.S. Securities and Exchange Commission, which accused Carl N. Karcher, chairman and chief executive of the firm, 14 family members and DeShano of avoiding market losses of at least $310,000 in 1984.
The civil charges are still pending against Karcher, six of his relatives and DeShano. Karcher and his six immediate family members are scheduled to go to trial on June 6.
‘Pure’ Insider Trading
DeShano’s trial will be the first in recent memory in Los Angeles dealing with “pure” insider trading in which an employee with access to corporate information has been accused of using it to his advantage, according to legal observers.
More typically, insider trading cases involve so-called “tippees”--non-employees who were told confidential information by insiders, then used it to buy or sell stock.
Assistant U.S. Atty. James L. Sanders has declined to comment on why DeShano is the only civil defendant who faces criminal charges or whether anyone else will be indicted.
But according to court papers filed by the government, DeShano “worked on making corrections” to the company’s quarterly financial report on Oct. 15, 1984. Those corrections, the government alleges, had the effect of reducing the company’s profits for the quarter.
“At approximately 12:15 p.m. on Oct. 15, DeShano contacted his stockbroker and sold all of his available (Karcher) shares. . . . As a result, prior to the public announcement of (Karcher’s) lowered earnings, DeShano avoided losses of approximately $7,107,” court documents state.
Defense documents, on the other hand, portray DeShano as an unsophisticated, hard-working employee who rarely traded stocks.
Legitimate Reasons Cited
“He didn’t trade based on inside information,” said defense attorney David Wiechert of Irvine. Instead, DeShano “had totally legitimate reasons for the sale,” the attorney said.
According to Wiechert’s trial brief, those reasons included financial need. DeShano’s son had asked his parents for a $5,000 loan, the papers state. And DeShano and his wife, Paula, were considering buying a mountain cabin in Lake Arrowhead.
In addition, defense documents say DeShano was advised by a Karcher executive, Steve Kishi, to diversify his investments. And his supervisor, Karcher controller George Cloward, told DeShano that he could properly sell his stock when he did, according to the trial brief.
“Cloward, as Al’s supervisor, was responsible for instructing Al regarding the trading rules of the company,” defense papers state.
The trial is expected to last 4 to 8 days.
