WASHINGTON — Seven executives or consultants for scandal-plagued Wedtech Corp. made large profits at the expense of unsuspecting investors by selling off their stock as Wedtech plunged into insolvency, an attorney for the now-bankrupt firm charged at a Senate hearing Wednesday.
A large block of stock--about $10-million worth--was sold last year by the Wedtech officers just before the public announcement that the company had lost its eligibility to receive no-bid government contracts under the Small Business Administration's minority business program.
Sen. Carl Levin (D-Mich.), chairman of the subcommittee conducting the hearing, said he will ask the Securities and Exchange Commission to investigate alleged insider trading by the former Wedtech managers and former White House aide Lyn Nofziger, a public relations consultant to the company.
The insider trading allegation joins a long list of abuses linked to the small New York manufacturing company, which once had $250-million worth of business with the Army, Navy and U.S. Postal Service. Twelve ex-Wedtech executives and present or former government officials have been indicted and four others have pleaded guilty to charges of fraud or influence buying in connection with the contracts.
Martin R. Pollner, Wedtech's counsel, said that those who unloaded Wedtech stock shortly before the April, 1986, SBA disqualification announcement included the firm's founder, John Mariotta, who is under indictment on bribery and fraud charges; four other top Wedtech managers; Nofziger, and Mark A. Bragg, Nofziger's partner in a Washington public relations firm.
Nofziger and Bragg realized $651,750 from sales of 66,000 shares of stock at that time, according to a chart provided by Pollner. Another Wedtech consultant, E. Robert Wallach, a San Francisco lawyer and close friend of Atty. Gen. Edwin Meese III, allegedly received $1.3 million from Wedtech stock sales at other times.
Stock Price Dropped
Levin, chairman of the Senate Governmental Affairs subcommittee on oversight of government management, said it appeared that the company managers and Nofziger improperly used inside information on the company's impending problems in deciding to sell. The subsequent announcement of the SBA's unfavorable decision--based on a finding that the firm no longer was minority owned--caused the firm's stock price to drop.
As a result of improper actions by Wedtech executives, "American taxpayers lost tens of millions of dollars paid for products that Wedtech would never be able to deliver and suffered a serious delay in the completion of an important element in our national defense," Levin said.
"Small businesses and investors lost tens of millions of dollars when Wedtech failed to meet its obligations and went bankrupt. And, perhaps most tragic of all, hundreds of low-income employees from the South Bronx . . . lost the jobs and the hope that this federal program had been intended to improve."
Levin observed that, as Wedtech managers built the company into a prosperous defense contractor that employed needy, unskilled workers, "political influence was bought and used not for a noble purpose--jobs for the disadvantaged--but for simple personal gain."
Charges Against Nofziger
Nofziger was indicted last July on six counts of illegally lobbying government officials on behalf of Wedtech and other business clients. Bragg was charged with aiding and abetting one of the illegal contacts. Both have pleaded not guilty.
Another witness, former SBA official Donald R. Templeman, described for the subcommittee one instance in which influence was exerted to help Wedtech in its request for a contract to build small engines for the Army. He testified that in May, 1982, he was summoned to a White House meeting by presidential aide James Jenkins, who was being lobbied by Nofziger, then four months out of the White House, for help in getting Wedtech the contract.
According to Templeman, "Jenkins said he had been given the task to bring this Wedtech situation together and wanted to get all the parties together to see if something could be worked out."
White House Pressure
Templeman said the Army had qualms because Wedtech's price was high and the company had no experience in producing engines. But he added that, under White House pressure to show that jobs were being provided for workers in the impoverished Bronx, "I committed the SBA to providing $5 million" for Wedtech for tooling, equipment and other start-up costs.
"I was trying to help the President," Templeman said.
Jenkins, who had been an aide to Meese at the White House, joined Wedtech as Washington marketing director three years ago and had earned $169,056 by the end of last year, when Wedtech declared bankruptcy, according to records provided by Pollner.