Carl’s Jr. Executive Acquitted of Insider Trading Violations
The accounting director for the Carl’s Jr. hamburger chain was acquitted Monday on a charge of insider trading.
“I’m obviously very happy,” said Alvin DeShano, wiping back tears after U.S. District Judge A. Wallace Tashima announced the verdict in federal court in Los Angeles. “I screwed up and obviously sold at the wrong time. But I definitely did not intend” to violate securities laws, he said. “I think the jury saw I was an honorable man.”
DeShano, 55, of Orange, was accused of using internal company information to avoid a $7,107 loss on stock of Anaheim-based Carl Karcher Enterprises, which runs the Carl’s Jr. fast-food chain. If found guilty, he faced a maximum five years in prison and $250,000 fine.
The jury decided that DeShano was not guilty of securities fraud after a five-day trial and almost two days of deliberations.
“There were just too many things that were in doubt,” said juror Leonard Kiteley, a retired tool-and-dye maker from Glendora.
“It was all circumstantial evidence that he actually sat down, analyzed and used” confidential information, said juror Joan Lajoie, an accounting assistant from Laguna Hills. “We didn’t feel the proof was there.”
DeShano’s criminal trial stems from a broader civil suit filed 14 months ago by the Securities and Exchange Commission against Carl N. Karcher, chairman and chief executive of Anaheim-based Karcher Enterprises, 14 Karcher family members and DeShano.
The SEC accused the 16 defendants of avoiding market losses of at least $310,000 in 1984 by selling securities before the earnings decline was made public. The civil case is pending against DeShano, Karcher and six of Karcher’s relatives. They had reached a settlement with the SEC but backed out when the U.S. Attorney’s office would not guarantee that criminal charges would not be filed. The trial has been indefinitely postponed.
Six others have agreed to pay $187,560 in penalties. A federal judge found Carl Leo Karcher, a son of Carl N. Karcher, guilty of insider trading and also dropped Carl N. Karcher’s wife from the lawsuit.
DeShano, who has worked at Karcher Enterprises for 15 years, is the only one who has been criminally charged. The government’s case against him was widely viewed as the strongest because--unlike the Karchers--there was no disputing that he had confidential information before he sold his company stock.
Insider trading is generally defined as buying or selling securities on the basis of information not available to the general public. Federal law prohibits any trading based on such knowledge.
Assistant U.S. Atty. James L. Sanders needed to prove that DeShano possessed--and relied on--confidential material information to make his trades and that he intended to defraud the public.
To do that, Sanders introduced evidence that DeShano saw a preliminary report on Oct. 12, 1984, showing that company earnings for the four weeks ending Oct. 5 would be as much as $900,000--or 65%--below projections. On the first trading day after the internal report was released, DeShano sold 1,725 Karcher shares--all of his available stock, according to government witnesses.
‘Accept Their Verdict’
When the company announced its lower earnings on Oct. 23, the market price of Karcher stock plunged $4.125 per share to $17.375, trial testimony established.
But defense lawyer David Wiechert of Irvine portrayed DeShano as an unsophisticated procrastinator who had been planning to sell his stock for weeks to diversify his investments.
After hearing the verdict, prosecutor Sanders said jurors “clearly paid close attention to the evidence. . . . We accept their verdict.”
At Karcher Enterprises--where a “hang in there” sign has been hoisted for DeShano--cheers broke out when the verdict was announced.
“Hallelujah! We’re extremely pleased,” said chief financial officer Loren Pannier. “We’ve felt he was innocent all along.”
The effect of the verdict on the SEC’s pending case is unknown.
Several legal experts suggested Monday that DeShano’s acquittal will mean that the government will be much less anxious to try the civil lawsuit. “If I were the SEC, I would think long and hard about pursuing it, given the jury’s result here,” Wiechert said.
The DeShano acquittal could make the U.S. Attorney’s office far less likely to indict Carl N. Karcher for insider trading--still a possibility until the time limit runs out in October.
“It’s clear that the U.S. Attorney’s office thought they had a case against DeShano,” said Wes Howell, an attorney for Karcher. “They were wrong. One would think that would put an end to any possibility of any criminal prosecution” of anyone else at Karcher Enterprises.
The U.S. Attorney’s office could not be reached for comment.
Karen Matteson, trial counsel with the SEC, said DeShano’s acquittal will have no effect on the civil lawsuit against him.
