Prosecutors have opened the first insider trading case ever in Maryland by telling a jury that two top executives of a Landover sewer pipe company hid financial losses from investors and federal regulators while they systematically sold $3.7 million worth of stock at inflated prices.
But defense attorneys for the Insituform East Inc. officials claimed that the company's reported losses, and the plummeting stock prices that resulted, were "aberrations" caused by the firm's production manager, who is to be a key government witness.
The trial began yesterday in U.S. District Court in Baltimore.
Defendants are Arthur G. Lang 3rd, 41, of Mitchellville, Insituform's founder and president, and Thomas C. Trexler, 41, of Kensington, the company's former executive vice president and chief financial officer.
They are charged with conspiracy, making false statements to the Securities and Exchange Commission, and multiple counts of insider trading.
U.S. Attorney Breckinridge L. Willcox said in his opening statement that Lang and Trexler manipulated accounting records, ordered the destruction of originals and artificially inflated the company's profit in the third quarter of 1986.
Then they "unloaded" nearly 180,000 shares of Insituform stock before they reported a $338,000 fourth-quarter loss, the prosecutor said.
Subsequently, the company's stock price plummeted from the mid-$20 range to about $10 per share by September, 1986.
Willcox said Henry Hulse, Insituform's former production manager, will testify that Lang ordered him to falsify records and "improve revenues" in the third quarter, and that Trexler directed record-doctoring to hide the actual losses.
Hulse pleaded guilty last week to falsifying an SEC report.
Lang and Trexler quietly dumped their stock through a Chicago broker after they knew about the losses, but hid true profit and loss figures from the SEC and investors until after their stock was sold, Willcox charged.
Defense attorney Julian S. Greenspun said Lang's 1986 stock sales reflected his "continued pattern and practice" of selling off chunks of his 640,000 shares of Insituform stock annually, as trade restrictions on it expired.
Greenspun portrayed Lang as an honest man who began Insituform with an idea and built it into a $20 million-a-year company through hard work and sales acumen.
The firm makes replacement sewer pipes for state and local governments utilizing a high-technology process patented by a British company.
Defense attorney Stephen H. Sachs said Trexler, who managed expansion plans and numerous other financial aspects of the fast-growing company, did not have daily control over Insituform's "inexperienced" accounting department.
Sachs called the company's accounting practices "slipshod," but said while Trexler "was not Accountant of the Year, the evidence will show that he's an innocent man."