CALIFORNIA ELECTIONS GOVERNOR : Feinstein’s Husband Sold Stock Two Days Before Value Plunged : Investment: A company director, he says he had no knowledge of impending leadership shake-up that triggered price drop. His sales totaled $2.7 million.

Dianne Feinstein’s husband--the chief financial backer of her campaign for governor--sold $2.7 million of stock in an Orange County company in the two days before it announced a management shake-up that caused the stock price to plunge, records show.

Feinstein’s husband, Richard C. Blum, is a director and leading shareholder of the company, Irvine-based National Education Corp., but said he had no knowledge that the company’s No. 2 executive was about to resign when he sold the stock in March, 1989.

Blum, who continues to control the largest block of the company’s stock, told The Times this week he is confident that the transactions complied with federal law that bars directors and other top corporate executives from profiting on information unknown to shareholders at large.

However, Blum recalled worrying at the time that the stock sale could become “an embarrassment” because of the proximity of the sale and the management announcement. Immediately after the announcement, the stock began falling and by year’s end stood at 29% of the price Blum received.

Mary M. McCue, a spokeswoman for the U.S. Securities and Exchange Commission, which enforces the insider-trading law, said she could not comment on whether Blum’s stock sales have been investigated, and there has been no evidence of an SEC probe.

But the stock sales were questioned in a civil lawsuit filed last year by shareholders who contended that the company issued rosy financial statements while Blum and other directors were selling their shares. National Education Corp., which was sued along with Blum and three other directors, settled the lawsuit last March for $11.8 million before it went to trial.

A company spokesman said that the company considered the litigation groundless but that the $11.8-million settlement “rids the company of further devotion of effort and energy.”

Blum’s stake in National Education Corp. was among the business holdings he listed recently as part of the Feinstein campaign’s effort to fully disclose the sources of the couple’s income. Some of those holdings and past investments had already become campaign issues.

Blum, who married Feinstein in 1980, has played a significant role in financing the Democratic nominee’s campaign. Bolstered by his multimillion-dollar income as an investor and manager of investment partnerships, he and his wife have loaned nearly $3 million to her campaign.

Blum sold the National Education Corp. stock--on behalf of the investment partnership he controls--on March 14, 1989, and March 15, 1989. He told The Times that he did so because he had become dissatisfied with the management “style” of H. David Bright, the company’s top executive.

He had no idea, Blum said, that the company would announce on March 16 that Jerome W. Cwiertnia would resign as president to pursue other career opportunities.

“I had been skiing,” at the Squaw Valley resort near Lake Tahoe, Blum said. Blum said that, as best he could recall, he learned of the announcement during a telephone conversation with Cwiertnia on the evening of March 15, when Blum returned to his home in San Francisco.

“I believe the announcement was the next day” after that phone call, Blum said. “But I can’t swear to it.”

Blum said that Cwiertnia “had been trying” unsuccessfully to reach him. When Cwiertnia informed him that he was going to resign, Blum said, “You could have knocked me over with a feather. . . . I had no knowledge that he was going to resign.”

Blum also said that “within 45 seconds” of the outset of their phone conversation, he told Cwiertnia that he had been “selling the stock.”

“I said to him, “ ‘Remember this, because it’s significant.’ . . . I knew that this could be an embarrassment.”

Shortly after the stock was sold, Blum said he hired a law firm to analyze the propriety of the transactions. The conclusion, Blum said, was that he did nothing wrong.

“In hindsight, I wouldn’t have done anything different,” he said.

For his part, Cwiertnia, who rejoined the company in July, 1989, and is now chief operating officer, offered differing recollections of his March, 1989, phone conversation with Blum during interviews this week with The Times.

When first asked if he was aware that Blum had sold the stock in the days before the management announcement, Cwiertnia said: “I wasn’t aware of it at the time,” adding that he learned of Blum’s stock sales after the shareholders’ lawsuit months later.

When told that Cwiertnia recalled their March, 1989, phone conversation differently, Blum encouraged a reporter to re-interview the executive.

Cwiertnia later returned a second call placed by The Times and said that Blum “did tell me” during that March, 1989, phone conversation that he had been selling National Education Corp. stock.

Asked to reconcile that with his earlier comments, Cwiertnia said he “must have misunderstood” the question initially.

Cwiertnia also said during the first interview that he could not recall with certainty which day he had informed Blum of his intention to resign, but that he had told Blum at some point during a round of phone calls he made to directors of the company. Those calls, Cwiertnia said, started “several days before” the March 16, 1989, announcement of his resignation.

“Obviously,” Cwiertnia said, “a decision of that magnitude is not made in a moment’s notice. It wasn’t made overnight.”

In the second interview, Cwiertnia recalled with more certainty his conversation with Blum. He said he was “pretty sure” they spoke the night of March 15, 1989, the evening before the announcement. “I had tried to reach him earlier,” Cwiertnia said, “and he had been out skiing.”

Harvey L. Pitt, former general counsel of the Securities and Exchange Commission, said that corporate insiders risk running afoul of the law if they buy or sell stock on the eve of public announcements that can affect the value of the company’s stock.

Blum became a prominent shareholder of National Education Corp. in 1987, when, through a $250-million exchange of stock, the company acquired Advanced Systems, a Chicago-based consulting company in which Blum was an investor.

National Education Corp. is one of the nation’s largest providers of educational services aimed at teaching new skills to workers and has a high-profile board of directors. The chairman is David C. Jones, former chairman of the Joint Chiefs of Staff, and other directors include former U.S. Sen. Barry Goldwater.

According to filings with the SEC, Blum’s stock sales began on March 14, 1989, when he sold 75,000 shares on behalf of the investment group he controls, Richard C. Blum & Associates Inc. That stock was sold at a per-share price of $24.13 and the value of Blum Associates’ sale proceeds was $1,809,750. Blum & Associates invests in five limited partnerships, composed of a variety of investors, including Blum himself.

The records show further that, on March 15, 1989, Blum’s partnership sold 40,000 more shares, at a per-share price of $23.25. The total value of that sale was $930,000. On March 16, 1989, National Education Corp. announced Cwiertnia was resigning. That same day, the company’s stock plunged to $18 a share.

By year’s end, after subsequent reports of low earnings and other troubles, the stock sold at $6.88 a share.

On March 17, 1989, noting the extraordinarily heavy selling of its shares and the drop of its stock price, National Education Corp. asked the New York Stock Exchange to investigate “unfounded rumors regarding (the company’s) business performance and prospects.” Jack Polley, a spokesman for National Education, said the stock exchange did not report any findings.

Seven months later, after the stock price had tumbled to about $8 a share, the investment partnership Blum controls began reinvesting. The stock closed Thursday at $3.50 a share, unchanged from the day before in composite trading on the New York Stock Exchange.

Federal records show that Blum controls 6.71% of National Education Corp.’s stock. Asked why he decided to reinvest, Blum said the return of Cwiertnia helped rekindle his confidence. “We changed our attitude about the company,” he said.