Sugarman to Pay $620,000 to Settle SEC Charges

Independent producer and corporate investor Burt Sugarman agreed Thursday to pay nearly $620,000 to settle charges by the Securities and Exchange Commission that he violated securities laws when he neglected to reveal his plans to take over a hamburger chain.

Without admitting or denying wrongdoing, Sugarman agreed to pay $556,522, representing money that was saved on the stock purchases by Giant Group, a publicly traded company that Sugarman controls.

Sugarman will also pay $63,333 in interest to the U.S. District Court in Washington, which will decide what to do with the money, said William R. Baker, enforcement division branch chief at the SEC, which filed suit in that court Thursday. Sugarman also agreed not to violate securities laws in the future.

Sugarman was a director of Rally’s Inc. when the fast-food chain went public on Oct. 13, 1989. He also headed a partnership that immediately began buying company stock. The partnership did not reveal its intent to gain control of the company until seven days later, when the group announced it had purchased 47% of Rally’s.

SEC regulations require that purchasers of large quantities of stock reveal their plans for their holdings. The SEC contends that by hiding its takeover plans, Sugarman’s partnership was able to buy Rally’s stock more cheaply.

“This is a case of omission rather than commission,” said Ralph Ferrara, a Washington lawyer representing Sugarman, who was traveling and unavailable for comment. “The (SEC) acknowledged in their complaint and their release that the transactions that formed the basis of the charges were undertaken under the advice of counsel, and eminent counsel at that.”

Baker of the SEC responded that “everyone consults with lawyers, but the complaint alleges that the disclosure responsibility was Mr. Sugarman’s.”

Sugarman controls about 40% of Giant Group, which owns two cement companies in addition to its stake in Rally’s. In 1988, Sugarman failed to take over Media General Inc., a newspaper and television company, and briefly was in the running to buy MGM with partners Jon Peters and Peter Gruber. In 1989, Sugarman sold his controlling stake in Barris Industries, whose programs included “The Gong Show.”

Rally’s, based in Louisville, Ky., is a chain of more than 300 fast-food restaurants in 23 states.