Was Sinclair execs' stock dump insider trading?

By Michelle Goldberg
Published October 19, 2004 8:03PM (EDT)

With Sinclair Broadcast Groups stock tanking, investors arent pleased about losing millions to further the management's right-wing agenda. Since the company announced that it was going to air "Stolen Honor," a hit piece on John Kerry, on all of its 62 TV stations, the company has lost about $140 million in market cap and is threatened with a boycott that could lead to further losses.

If Sinclair were a private firm, it would be free to destroy its bottom line in the name of ideology. But Sinclair is public, and its stockholders are mad. Recently, several clients of the San Diego securities litigation law firm Lerach Coughlin Stoia Geller Rudman Robbins -- most of them big institutional investors like 1199 SEIU Greater New York pension fund -- inquired about filing suit against the broadcast company.

But when William Lerach, a partner in the law firm, started looking into Sinclair, he realized that several of the company's senior executives and one member of its board of directors unloaded all their stock before the price tumbled. Now, in addition to suing Vice President Frederick Smith, Vice President J. Duncan Smith and director Robert E. Smith for driving down Sinclair's stock price, Lerach is also accusing them of insider trading.

"We have discovered that senior executives and a director of Sinclair appear to have taken advantage of their inside knowledge of the Companys business and prospects to sell over $18.5 million worth of Sinclair stock, most of which sales took place near the stocks 52-week high of almost $15.50 per share," Lerach wrote in a letter to Sinclair's board. "Specifically, Sinclair Vice President Frederick G. Smith sold 75,000 shares of Sinclair stock on December 23, 2003 at $14.30 per share for total proceeds exceeding $1 million. This sale by Frederick Smith represented nearly 15% of his total Sinclair holdings. Sinclair Director Robert E. Smith has, between December 30, 2003 and April 7, 2004, sold nearly 1 million shares of Sinclair stock  virtually 100% of his holdings  at an average price of well over $13 per share, pocketing $13.2 million in proceeds. And Sinclair Vice President J. Duncan Smith, between December 12, 2003 and January 8, 2004, sold nearly 300,000 shares of Sinclair stock  virtually 100% of his holdings  at an average price of over $14.30 per share, pocketing nearly $4.5 million in proceeds."

As Lerach explained during a conference call with reporters today, he's not necessarily claiming that the Sinclair execs unloaded their stock because they knew the company was going to stir up trouble with "Stolen Honor." Even before the storm over "Stolen Honor," the company's stock was on the way down, and he said it appears that the executives took advantage of inside knowledge about Sinclair's prospects.

"I could speculate that they knew at that time that they were going to run this controversial movie and there would be controversy about it, but we're not saying that," Lerach said. "At the time of those sales it appears that they were aware of a softening in their business and their advertising revenue due to mismanagement internally."

These suspicious sales might never have been noticed if it wasn't for the "Stolen Honor" uproar. "It shows again the peril of engulfing a public company in a major controversy," Lerach said. "Now these executives are likely to be tied down in extensive and time-consuming litigation over insider trading."

Meanwhile, other Sinclair investors are also getting restive. Today, Atrios posted a link to a letter that New York Comptroller Alan Hevesi wrote to Sinclair CEO David Smith regarding the 256,600 shares of Sinclair stock held by the New York State Common Retirement Fund. In it, Hevesi demands to know how much the decision to run the Kerry smear has cost the company and how it might affect its financial future. "Some critics suggest that Sinclair management is more interested in advancing its partisan political views than in protecting shareholder value," he wrote. "They say Sinclair's partisan agenda also risks alienating viewers, advertisers and regulators. Could you explain why they are wrong?"

We can't wait to see how Sinclair answers.

Michelle Goldberg

Michelle Goldberg is a frequent contributor to Salon and the author of "Kingdom Coming: The Rise of Christian Nationalism" (WW Norton).

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