A former top executive of Washington Group said he warned R. J. Reynolds tobacco heir Smith Bagley that methods Bagley was using to get employes to buy large blocks of Washington Group stock might be improper.
Neal Tompson, testifying in the ninth day of the trial of Bagley and four others on charges of illegal manipulation of stock, said he told Bagley in early 1975 "this was a practice I hadn't seen before and questioned if it was proper to do it."
Also in today's proceedings, an investment expert said Washington Group stock was overvalued largely because of large stock purchases by the company's profit-sharing and employes' stock purchase plans.
Coercing employes and friends to buy large amounts of Washington Group stock and rating the assets of the employe benefit plans were two ways federal prosecutors say Bagley and codefendant Jim Gilley, vice president, tried to create demand for Washington Group stock to inflate its price in 1974 and 1975.
The prosecutors are claiming that Bagley and Gilley cosigned large loans at Northwestern Bank in Winston-Salem, N.C., for employes and friends to finance stock purchases. A secretary was able to borrow more than $200,000 this way to buy stock.
As another part of the plan to control stock prices, Bagley and Gilley dismissed Wachovia Bank and Trust Co. as trustee of the profit-sharing plans because the bank wouldn't use more of the assets to buy Washington Group stock, government prosecutors say. Bagley and Gilley transfered the trusteeship to a Pennsylvania bank because that bank agreed to invest 6 percent of the plans' assets into Washington Group stock. Bank examiners have said that showed "a lack of fiduciary prudence," according to testimony.
Tompson, who was chairman of the board of the seven-plant Johnston Mills subsidiary of Washington Group, said today he can't recall if Bagley responded to his objections to the large purchases of company stock by employes.
Tompson also said he objected to a memorandum Bagley sent out telling employes to give advance notices whenever they want to sell their stock. The memo said the purpose of such notices was to protect the company from violation of federal securities laws, said there was no reason under the law that all company employes should be required to give such a notice.
Investment expert Robert Hastings said he evaluated Washington Group stock in early 1975 for a company tht Bagley and Gilley were trying to buy. He said his study showed the stock was worth $7 to $10 a share, but it was selling for $17 to $20 share throughout 1974 and early 1975.