The Securities and Exchange Commission yesterday charged General Dynamics Corp. with insider trading in connection with a 1978 purchase of its own stock before publicly disclosing a planned cash dividend.
Officials of the company were aware of a proposed cash dividend before the company bought 157,500 shares of its common stock in December 1978, the SEC charged.
General Dynamics, a major defense contractor based in St. Louis, signed a consent agreement with the commission, pledging to refrain from violating the antifraud provisions of federal securities law.
The company said in a statement that it signed the consent decree "to avoid the heavy expense and disruption of protracted litigation" and said it "acted properly in its stock-purchasing activities over the past six years." i
The stock was purchased between Dec. 6 and Dec. 29 in nine separate transactions totaling $12.4 million.
Although the company said its board of directors hadn't made a decision on whether to issue the dividend, the SEC said in its complaint that company officials had discussed the dividend at a meeting of the board of directors on Nov. 3, 1978.
The discussion was prompted by the settlement of a contract dispute with the U.S. Navy which, combined with a favorable 1978 profits picture, had made in "appropriate to review again the dividend question," the SEC complaint said.
A company official also told the board at that time "that in order to prevent a leak of the information concerning General Dynamic's consideration of a dividend, no mention of the dividend would be placed on the predistributed agenda" for the January board meeting, the SEC said.
After that meeting, General Dynamics announced that the company would issue a dividend of $3 a share before a stock split, also disclosed at that time. It was the company's first dividend announcement since 1971.