Karchers Settle Insider-Trading Case With Fine
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,” Thomas Holliday, Karcher’s attorney, said.
Under the consent agreement, Karcher and his family members neither admitted nor denied the charges made against them. Combined with a tentative 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 private insider information to help his relatives avoid stock market losses of at least $310,000 in 1984.
Settlement Failed
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 that his relatives purportedly 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, also has 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 settlement has not yet 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 Karcher and his relatives settled the SEC action without admitting or denying the accusations, all agreed to court orders forbidding them to violate insider trading laws.
General terms of the settlement with the Karcher family were approved several weeks ago by the SEC in Washington, SEC attorney John Koutsos said. Final details were negotiated Monday when case 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.
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 gave the government “as much relief as we would have gotten had we won the entire case after a trial,” Koutsos said.
According to Koutsos, the settlement reached with the Karcher family is fairly standard in an insider-trading case.
If Karcher had lost the civil suit, he personally could have been assessed a fine of three times the total amount of losses avoided, or $996,000. His six relatives could have been ordered to repay a total of $1.3 million.
DeShano could have been assessed a total of $49,584 had he lost at a civil trial.
Reached at Karcher Enterprises on Monday, DeShano expressed relief that the case is over but added that he is “disappointed” and “upset” by the amount of the fine. The SEC, he said, was “vindictive” in calculating the amount of his penalty. “But all things considered, it’s only money . . . so it’s not too bad,” he added.
At Carl Karcher Enterprises, chief financial officer Loren Pannier said he was “delighted that we have put this behind us.”
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 founder’s wife, from the lawsuit.
Six other family members, including Carl N. Karcher’s brother and company president Donald Karcher, settled with the SEC in February by agreeing to pay $187,560.
THE KARCHER CASE: A CHRONOLOGY
APRIL 15, 1988--SEC files lawsuit accusing Carl N. Karcher, 14 family members and one employee of insider trading.
SEPT. 12, 1988--Judge Edward Rafeedie rules that there is enough evidence to find that Carl Leo Karcher violated insider trading laws. Carl Leo Karcher was fined $10,500.
FEB. 13, 1989--Six defendants, including company president Donald F. Karcher, agree to pay a total of $187,560 to settle their part of the case.
FEB. 16--Company accounting director Alvin DeShano is criminally charged with one count of receiving and using confidential corporate information.
APRIL--Civil charges against Margaret Karcher, wife of Carl N. Karcher, are dismissed.
MAY 3--Attorneys for Carl N. Karcher and his family reach tentative agreement with the federal government to settle the civil lawsuit.
MAY 5--The tentative settlement is stalled when the U.S. attorney’s office refuses to guarantee that it would not file criminal charges against Carl N. Karcher and his relatives.
JUNE 6--Los Angeles jury acquits Alvin DeShano on a single charge of insider trading.
JULY 24--Attorneys meet, iron out final differences to settle insider trading charges against Carl N. Karcher and six family members.
