Karcher Executive Sought OK for Stock Sale, Jury Told
Alvin DeShano, the Carl Karcher Enterprises accountant accused of illegal insider trading, discussed selling his Karcher stock before he had any knowledge of an impending dramatic drop in the company’s profits, Karcher’s treasurer testified Thursday.
Elaine Falbe, vice president and treasurer of the Anaheim fast-food chain, told a federal jury in Los Angeles that DeShano asked controller George Clower in late September or early October of 1984 whether he could sell the shares.
Federal prosecutors contend that DeShano sold all of his Karcher stock on Monday, Oct. 15, 1984, after receiving a preliminary, internal report on the previous Friday showing that the company’s earnings for the 4-week period that ended Oct. 5 would be as much as $900,000 below projections.
Falbe was called as a witness on the first day of the defense portion of the 3-day-old trial for DeShano, who is accused of avoiding $7,107 in losses by selling shares based on information that had not been made public.
Also on Thursday, Karcher executive Steve Kishi told jurors that he had advised DeShano earlier in 1984 to diversify and not invest only in company stock.
According to Kishi, director of international development, DeShano asked him in the summer or fall of 1984 about selling his stock. “I told him our stock has tremendous fluctuation and that keeping everything in one stock was probably not a good investment. . . . I told Al the very prudent thing would be to diversity . . . take the profits and put them in another investment like a money market (account),” Kishi said.
The two Karcher executives’ testimony is intended to help convince jurors that DeShano believed that he was doing nothing wrong by selling his stock.
But before the two testified Thursday, defense lawyers were handed two setbacks by U.S. District Judge A. Wallace Tashima.
First, the judge denied defense attorney David Wiechert’s motion to acquit DeShano before the conclusion of the case. “I agree there may not be direct evidence of intent, but there certainly is circumstantial evidence,” the judge said.
Then--in a ruling that visibly shocked and angered Wiechert--Judge Tashima decided to bar a major portion of the defense’s proposed testimony about whether DeShano used material information to make his sales.
In her testimony Thursday, Falbe said that DeShano, in his discussion with Clower, “basically said, ‘Hey, Boss, I’m thinking of selling some stock. Is that OK?’ There was some discussion . . . (and) Clower’s basic response was ‘Yes,’ it was OK for Al to sell his stock.”
In the trial, the government must prove that DeShano had criminal intent and used material, non-public information to avoid a stock market loss. Federal law prohibits any stock trading based on such inside knowledge.
The criminal case stems from a civil suit filed last year by the Securities and Exchange Commission in which Carl N. Karcher, along with 15 members of his family and DeShano, were accused of avoiding stock losses of at least $310,000 in 1984 by selling securities before the earnings decline was made public.
The civil case is pending against Karcher as well as six of his relatives and DeShano. DeShano is the only one who has been criminally charged.
Clower, who testified earlier in the trial, has said that he does not remember the conversation with DeShano, according to documents filed in the case.
Clower--DeShano’s immediate supervisor--acknowledged that he sold blocks of his own Karcher stock on five occasions in the fall of 1984. Clower made his sales as late as Oct. 11--the day before Karcher executives received the internal report showing the dramatic plunge in earnings.
