Former Executive Convicted of Insider Trading

A former Orange County software company executive was convicted by a federal jury Wednesday on 11 counts of insider trading.

Richard J. Smith, formerly a vice president at PDA Engineering Inc. in Costa Mesa, was found guilty of avoiding losses and profiting through so-called “short sales” of PDA stock after he gained inside knowledge that the company’s sales would fall short of projections, federal prosecutors said.

Short sales are basically bets that a company’s stock will drop in value. In a short sale, an investor borrows shares from a broker, sells them and then hopes that the price falls before having to buy new shares to replace them.

Smith, 48, and his parents sold short a combined 47,000 shares of PDA stock in 1993, shortly before the price of the stock plunged after an announcement that the company’s revenue was “below forecast,” according to Assistant U.S. Atty. David Z. Seide, who prosecuted the case.

Smith also used inside information to avoid losses on his own holdings by selling 50,445 shares of PDA stock that he owned before the price dropped, Seide said. Through these transactions, Smith and his parents collected profits or avoided losses totaling more than $150,000.

Smith’s trial in U.S. District Court in Los Angeles lasted two weeks. He is scheduled to be sentenced on Feb. 3 and under federal sentencing guidelines is likely to face at least 18 months in federal prison.

Smith left PDA in 1994 to become chief executive of Artios Corp., a privately held computer software company in Irvine. He was indicted by a federal grand jury in Los Angeles on May 23 this year and subsequently resigned from Artios. In 1994, PDA was purchased by MacNeal Schwendler Corp., based in Pasadena.

Smith was also accused of insider trading in a suit filed in federal court in Los Angeles last year by the Securities and Exchange Commission. That civil case has not been resolved.

Smith’s primary residence is in Nashville, Seide said.