Karcher, Family to Pay $664,000 to Settle Insider Trading Lawsuit
Carl N. Karcher, founder of the Carl’s Jr. hamburger chain, and six of his relatives agreed Monday to settle civil charges of insider trading by paying a total of $664,000.
“The case is settled. Carl just wanted to get it behind him for the benefit of his family and children,” said Thomas Holliday, Karcher’s attorney.
Under the consent agreement, Karcher and his family members neither admitted nor denied the charges made against them. Combined with a proposed pact with company accounting director Alvin DeShano, the settlement ends a civil lawsuit filed 15 months ago by the Securities and Exchange Commission. The SEC had alleged that Karcher and others supplied insider information to help his relatives avoid stock market losses of at least $310,000 in 1984.
Founder to Pay $332,000
An attempt last May to settle the SEC suit fell apart when federal prosecutors refused to rule out the possibility of criminal prosecution. Attorneys close to the case said the family received that guarantee in the settlement announced Monday.
The settlement requires Karcher, 72-year-old founder and chief executive of Anaheim-based Carl Karcher Enterprises, to pay a fine of $332,000, the amount his relatives saved by selling company stock after he allegedly told them that the firm was about to report a dramatic drop in earnings. The accord also requires the six relatives to pay, overall, another $332,000 to the federal government.
DeShano, accounting director of Karcher Enterprises, has also tentatively agreed to pay $12,396, the amount he saved by selling his company stock, plus a penalty of $12,396. Unlike the Karcher family agreement, the DeShano pact has not been approved by the SEC in Washington, but such approval is expected soon, sources close to the case said. Under the agreement, DeShano would not admit or deny wrongdoing but would agree not to violate securities laws.
Of the 16 defendants sued last year for insider trading, only DeShano was criminally charged. After a five-day trial, a Los Angeles jury in June found that DeShano was not guilty of a single count of securities fraud.
Although all the defendants agreed to settle the SEC action without admitting or denying the accusations, all agreed to court orders forbidding them from violating insider trading laws.
General terms of the settlement with the Karcher family were approved several weeks ago by the SEC in Washington, SEC trial counsel John Koutsos said. Final details were completed Monday when attorneys met for an hourlong, closed-door session with U.S. District Judge Edward Rafeedie in Los Angeles.
By settling the case, Karcher chose to avoid both the emotional and financial costs of a trial, his lawyer said. “We had a winnable case,” Holliday said. “But the monetary cost, in terms of lawyers and personal impact on the family, far outweighed the desire to win” at trial.
Legal Costs Cited
Holliday estimated that legal costs could have approached $1 million for all seven Karcher family defendants. In addition to Carl Karcher they are: his daughter Catherine Karcher Everly and her husband, Daniel Everly; daughter Margaret J. LaVecke; daughter Barbara Karcher Wall; son Jerome Karcher, and a son-in-law, Donald E. Fergus Jr.
The settlement hands the government “as much relief as we would have gotten had we won the entire case after a trial,” Koutsos said.
Charges against the other defendants named in the SEC complaint were resolved earlier.
Last fall, Judge Rafeedie decided that Karcher’s son, Carl Leo Karcher, had illegally traded his stock and fined him $10,500. In April, the judge dropped Margaret Karcher, the company founder’s wife, from the lawsuit.
Six other family members, including company President Donald Karcher, settled with the SEC in February by agreeing to pay $187,560. That settlement included an agreement from the U.S. Attorney’s Office that criminal charges would not be brought against those who settled, according to lawyers involved in the case.
