Three former employees of MAI Basic Four Inc., including two top financial executives, settled civil charges Wednesday that they traded on inside information about MAI’s planned takeover bid for Prime Computer Inc. in 1988.
The Securities and Exchange Commission said that Dale T. Jabour of Santa Ana, Ronald Lee Thurman of Orange and Winston M. Cheong of Costa Mesa have agreed to settle the charges without admitting or denying any wrongdoing.
The SEC alleged that Jabour, a former director of accounting at MAI, purchased Prime call options after overhearing two MAI executives discuss the Tustin computer company’s planned takeover of Prime in October, 1988.
MAI launched a surprise hostile tender offer for Prime on Nov. 15. Prime, a Natick, Mass., computer maker, rebuffed the MAI bid and after a protracted takeover fight, Prime agreed to be acquired by J.H. Whitney & Co., a New York investment firm, in August, 1989.
Jabour, 36, is accused of passing the non-public information to Thurman, 37, then director of financial planning at MAI, and Cheong, 31, a staff business analyst. The three executives bought a total of 375 options to purchase Prime common stock at prices between $15 and $17.50 per share, the SEC alleged.
A call option is a right, but not an obligation, to buy 100 shares of a company stock at a predetermined price at a future date. For investors who think a stock may rise dramatically, such options permit a profit from a smaller investment than it would take to buy the stock.
The SEC alleged that Jabour and Cheong sold their Prime options three days after MAI publicly announced its bid for Prime. Jabour realized $21,800 in profits and Cheong made $3,830. Thurman sold his Prime options within two weeks and, because of a decline in the stock’s price, profited only $1,875, the SEC alleged.
Federal securities laws prohibit company employees from trading on sensitive information before it has been made public.
Before the SEC action, Jabour returned his $21,800 in alleged illegal profits to the party that sold him the Prime options, said James W. Mercer, Jabour’s Los Angeles attorney.
“Dale has suffered a lot and is glad this is over,” Mercer said. He said Jabour is now employed as a corporate controller for another Southern California company.
Bertrand Weidberg, MAI’s general counsel, said Jabour told MAI management in February, 1989, that he had purchased Prime options based on non-public information, and then resigned weeks later. The company was unaware of Thurman and Cheong’s involvement “until literally hours before their resignation” within the past month, he said.
Thurman, who has been ordered to pay $3,750 in restitution and fines, would not comment on the case.
Cheong, who will have to pay $7,660 in restitution and fines, could not be reached for comment.
Although the profits involved were relatively small, James L. Sanders, the SEC regional administrator in Los Angeles, said this will send a message to others.
He said that the three executives could face criminal charges if they violate the SEC injunction prohibiting them from engaging in securities violations in the future.