Trial Begins for Karcher’s Accountant : Accused of Selling Stock Using Inside Information
The insider trading trial of Carl Karcher Enterprises accountant Alvin DeShano opened Tuesday with DeShano’s lawyer portraying the defendant as an unsophisticated investor who never intended to cheat anyone and who sold his company stock at the wrong time.
DeShano is accused of avoiding $7,107 in potential losses in October, 1984, by relying on confidential information to sell his stock in Karcher Enterprises. But his attorney contends that he didn’t have inside information.
“The (Karcher) people in charge of forecasting (profits) had information about the future that Al DeShano didn’t have,” defense lawyer David Wiechert told federal court jurors in Los Angeles. “Al DeShano is a numbers counter” who sold his Karcher stock only after two company executives told him he could, Wiechert said.
But Assistant U.S. Atty. James L. Sanders told jurors that DeShano “was one of the first people within Karcher Enterprises to find out about a dramatic drop in earnings” and sold his stock three days later.
The criminal trial stems from a civil insider trading lawsuit filed last year by the Securities and Exchange Commission against DeShano and 15 members of the Karcher family. The defendants, including hamburger baron Carl N. Karcher, chief executive of Karcher Enterprises, were accused of avoiding stock market losses of at least $310,000.
Must Prove Intent
The civil case is still pending against Karcher, six of his relatives and DeShano. DeShano, a 54-year-old resident of Orange, is the only one who has been criminally charged.
In the criminal trial, Sanders must show that DeShano intended to defraud the public by using material, non-public information to avoid a stock market loss. Federal law prohibits any stock trading based on this inside knowledge.
The critical issues that emerged during Tuesday’s opening statements focused on how much DeShano knew about Karcher’s unexpected earnings plunge and when he learned it. According to Sanders, DeShano received a report on Friday, Oct. 12, 1984, showing that profit for part of the quarter ending Oct. 5 was 65% lower than projected.
On Monday--the next trading day--DeShano sold his stock without asking his broker’s advice, Sanders said.
But according to Wiechert, the unexpected drop in Karcher earnings “wasn’t information that DeShano could have guessed at.” Instead, Wiechert said DeShano had other reasons to sell the stock. He said those reasons included being advised by Steve Kishi, Karcher’s director of corporate audit and tax, to diversify his investments. Moreover, DeShano’s supervisor, Karcher Controller George Cloward, told DeShano he could sell his stock, Wiechert said.
If Wiechert can prove that DeShano’s supervisor told him to sell, it would show that DeShano never intended to defraud investors. Cloward is expected to testify today.
