The president and former executive vice president of Insituform East Inc. of Landover have been indicted in U.S. District Court in Baltimore on a variety of insider-trading charges that stem from their sales of company stock in 1986 just before its value dropped by half.
A 14-count indictment returned by a grand jury here lat yesterday charges Arthur G. Lang 3rd, 41, of Mitchellville,
Insituform East's president, and Thomas C. Trexler, also 41, of Kensington, the firm's former executive vice president and chief financial officer, with conspiracy and making false statements and multiple counts of securities fraud.
The indictment alleges that the defendants falsely "perpetuated positive financial picture for the Landover company in a 1986 third-quarter financial report, misrepresented income and expenses in a Form 10Q report to the Securities and Exchange Commission and took several complicated accounting actions to falsely elevate the price of Insituform's publicly traded stock.
The defendants also destroyed original production records an substituted new, fraudulent ones for the records that were destroyed, the indictment says.
Then, the indictment says, knowing that the the compan
actually had suffered a $338,000 loss, Lang and Trexler sold nearly 180,000 shares of Insituform stock at the inflated market prices shortly before the firm announced a fourth-quarter loss, after which the stock price plummeted.
The indictment says Lang sold 109,419 shares of Insitufor stock for $2,135,468, or about $19.50 a share, and Trexler sold 70,205 shares of stock for $1,644,479, or about $23.40 a share.
Both men sold their stock in the summer of 1986 just after th expiration of trading restrictions on it, at a time when the stock price was falsely inflated, the indictment says.
In addition, the two conspired to conceal Lang's June 16, 198 sale of 77,000 shares of Insituform stock by intentionally failing to file a required public disclosure form, the indictment alleges.
On Sept. 30, 1986, about a month after the fourth-quarter los was publicly reported, Insituform's stock closed at 10 7/8 a share.
Breckinridge L. Willcox, the U.S. attorney for Maryland, said th criminal case is the first federal insider-trading prosecution ever filed in Maryland.
The indictment alleges that Lang and Trexler made or ordere numerous "false and fraudulent" accounting entries on Insituform's books which inflated reported income by $190,000 and "artificially" reduced the company's expenses by about $75,000, especially during March 1986, the last month of the third quarter.
The fraudulent third-quarter accounting entries were reversed o the books in the fourth quarter, which led the company to finally report the massive loss, the indictment says.
Insituform East, a $19 million-a-year company that is publicl traded on the NASDAQ over-the-counter market, specializes in the reconstruction of sewer pipelines using a process in which new, smaller pipelines are inserted into the old ones without excavation.
The company reported last year that it was under investigatio by a federal grand jury in Baltimore for alleged insider trading and other irregularities.