Ex-Software Firm Executive Accused of Insider Trading

A former Orange County software company executive was indicted Friday by a federal grand jury on charges he engaged in illegal insider trading and obstructed a Securities and Exchange Commission investigation into his activities.

Richard J. Smith, 48, former vice president for PDA Engineering Inc., allegedly used inside information about the company to trade stock for profits and to avoid losses in 1993. The total benefit to Smith and his parents was $128,000, according to the 11-count indictment. Smith, who has residences in Newport Beach and Tennessee, could not be reached for comment.

According to court papers, Smith discovered that PDA--now a unit of the Los Angeles software firm MacNeal Schwendler Corp.--would not achieve its projected revenue for its 1993 fourth quarter.

In June 1993, Smith sold all 50,445 of his shares of PDA common stock and sold “short” 35,000 additional shares in order to profit when the company’s stock price dropped after news of the disappointing quarterly results was published, Assistant U.S. Atty. David Seide said.

In a so-called short sale, the investor borrows stock from a brokerage and sells it in anticipation that the price will drop. If the price does fall, the investor simply purchases enough shares at the lower price to repay the brokerage and pockets the difference. If the price rises, however, the investor loses money.

Smith’s parents also “shorted” 12,000 shares of PDA stock on the advice of their son, court papers allege. The parents were not charged.

The indictment also alleged that Smith obstructed the SEC’s probe by providing false information to an investigator about his stock transactions.