IRVINE — The $2.7-million sale of an Orange County company's stock last year by Richard C. Blum, the husband and chief financial backer of gubernatorial candidate Dianne Feinstein, was completely proper, a spokesman for the company said Friday.
Blum sold the stock in March, 1989--on the eve of a management shake-up that caused an immediate plunge in the value of the company's stock. Blum, a director and major stockholder of Irvine-based National Education Corp., has said he had no advance word of the announcement and did nothing wrong.
"The company has looked into the matter, and to the best of its knowledge, Mr. Blum in no way acted improperly," said Steven I. Baser, the company's senior corporate counsel.
Baser, reading from a statement, added: "Further, we understand that the SEC (Securities and Exchange Commission) reviewed the matter and presumably reached the same conclusion."
Blum said in an interview last week that he and other National Education Corp. officials were questioned "some months ago" by the SEC. Representatives of the SEC declined again on Friday to say whether the agency has investigated the transaction or plans to do so.
Based on federal records, The Times reported on Sept. 14 that Blum sold the $2.7 million of stock during the two days before National Education Corp. announced that its president was resigning. The announcement, the company has acknowledged, caused its stock value to drop.
Blum, who continues to control more stock than any other director of the company, has said that he was skiing in Squaw Valley at the time he was selling his stock and had no inkling of the impending resignation before he sold the stock on March 14 and March 15, 1989. His actions, he said, complied with federal law barring corporate insiders from exploiting information not available to all shareholders.
National Education Corp. announced the resignation of its president, Jerome W. Cwiertnia, on March 16, 1989.
A 1989 shareholders' lawsuit that named Blum, three other directors and the company as defendants alleged violations of federal securities law, fraud and misrepresentations of the company's true financial posture. The lawsuit--which was settled for $11.85 million--said the company issued rosy financial information for the firm at the same time several directors, including Blum, were selling stock.
Nearly all the stock selling at issue in the lawsuit was conducted by Blum, and he was the only director to sell stock in the days immediately preceding the March, 1989, management announcement.
National Education Corp.'s insurance carrier first refused to pay any portion of the $11.8-million settlement but later agreed to pay $5.5 million.
Jeffrey A. Brill, National Education Corp.'s general counsel, said that in his view the insurance company's refusal to pay a larger portion of the settlement was unrelated to the accusations of wrongdoing contained in the shareholders' lawsuit. Brill also noted that the four directors--but not the company itself--were insured.
Brill acknowledged that the insurance policy in question states that the firm will not be indemnified if directors violate federal securities law or engage in other wrongdoing. But Brill said that provision had no bearing on National Education Corp.'s ability to collect only 46% of the settlement cost.
Blum, in a statement relayed by Feinstein's campaign manager, said that "the insurance company fulfilled its obligation to protect" the four directors named in the shareholders' lawsuit.
"However," Blum added, "since the policy does not insure the company itself, the company paid a portion of the settlement."