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Government Alleges Insider Trading By Ex-Philips Executive

November 14, 1990

DAYTON, Ohio (AP) _ Government lawyers charged Wednesday that a former Philips Industries Inc. executive avoided nearly $570,000 in personal losses by selling company stock while he had inside information.

Robert H. Brethen, a former Philips vice chairman, is accused of selling the stock when he knew that a proposed leveraged buyout was in jeopardy because of low earnings projections.

During opening statements at Brethen’s civil trial, Securities and Exchange Commission attorney Jim Tyne said Brethen sold 109,733 shares of Philips stock in January while possessing information about the projections.

The SEC sued Brethen in federal court in February. The agency is asking U.S. District Judge Walter Rice to order Brethen to give up the $570,000 plus interest and to pay a $1.7 million penalty.

Tyne said Brethen, who retired last December, knew through internal reports that company officials were forecasting lower earnings in the fall of 1989 and that Philips was failing to meet the lower projections.

Tyne also said Brethen knew that failure to meet the projections threatened a proposed leveraged buyout of the Dayton-based building and transportation products maker by Merrill Lynch Capital Partners Inc.

″No one outside the company ... knew these projections, and particularly the public didn’t know about these projections,″ Tyne said.

But David Cupps, Brethen’s attorney, said questions about the financing for the buyout as well as changes in Philips’ operating costs were included in a public proxy statement filed Dec. 20, 1989. ″That disclosure was not secret,″ he said.

Cupps said published reports had stated that banks were backing away from helping to finance the buyout.

William McCanna, Philips chief operations officer, testified that Brethen had access to three sales forecasts prepared by the company in October 1989 that were decreasingly optimistic. He said the forecasts were not public.

Tyne said Brethen was told by company officials shortly before he retired that Merrill Lynch was disappointed with the company’s third-quarter earnings and there could be difficulties arranging bank financing.

″Right after his retirement, he started talking to lawyers about selling his stock,″ Tyne said.

Tyne said one attorney told Brethen the information was confidential and another told him he shouldn’t sell his stock. ″The evidence will show he was warned not to sell his stock,″ he said.

The government alleges Brethen sold 100,000 shares of Philips stock at $22 per share on Jan. 9 and an additional 9,000 shares at $19 per share two days later.

At the end of trading that day, Philips announced Merrill Lynch was unable to proceed with the buyout because of Philips’ third-quarter earnings. The price of Philips stock fell to $15.50 per share the next day.

Tyne said Brethen later told the SEC he sold the stock to pay off some debts, but that evidence shows he had enough assets to cover those obligations.

Last August, Philips shareholders approved the acquisition of the company by Tomkins PLC of the United Kingdom.

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