The Securities and Exchange Commission yesterday accused Crown Cork and Seal Co., a can and bottle cap supplier, of securities violations in connection with alleged improper payments to a former official of General Cinema Corp.'s bottling operations.
After the charges were filed against Crown Cork in U.S. District Court, the New York firm settled the case without admitting or denying any wrongdoing, the SEC said.
In a related suit, the SEC accused Herbert G. Paige, former chief operating officer of bottling operations for General Cinema, a conglomerate with a chain of theaters and soft-drink-bottling operations, of receiving $5.9 million in payments intended for General Cinema from Crown Cork. The SEC said the payments were made through a company formed by Paige called Pasha Service Corp. Paige then had General Cinema buy cans and bottle caps from Crown, the SEC alleged.
In addition, a Crown subsidiary allegedly made two loans to Paige totalling $1.75 million and financed Paige's purchase of an airplane without General Cinema's knowledge. Paige's alleged activities resulted in errors in General Cinema's annual report, the SEC charged.
Crown Cork allegedly violated antifraud, periodic-reporting and books-and-records provisions of the federal securities laws and "was reckless in not knowing that the payments to Pasha were not for the use or benefit of General Cinema and that such funds were being used for the personal benefit of Paige," the SEC said. None of the Pasha payments or other transactions with Paige were disclosed in its annual reports, the SEC said.
Paige couldn't be reached for comment at his Coral Gables, Fla., home, but his attorney, John R. Wing of New York, said he had no comment on the case.
According to the SEC, Paige, who already had experience in the bottling business, formed a corporation called Pasha, of which he owned 90 percent of the stock. Beginning in October 1970, Paige allegedly had Crown Corp. make payments to Pasha that were intended for General Cinema, the SEC said.
Crown allegedly mailed the Pasha checks to Paige at his General Cinema office in envelopes marked "personal and confidential," the SEC said. According to the agency, Paige kept $5.1 million of the $5.9 million allegedly paid to Pasha and gave the rest to his accountant.
Shortly after the payments to Pasha began, Paige allegedly had the managers of General Cinema's bottling plants buy most of their cans and bottle caps from Crown, even though some managers complained that the purchases "were neither feasible nor desirable," the SEC complaint said.
Between 1976 and 1978, Crown Financial Corp., a wholly owned subsidiary of Crown which finances purchases of equipment from Crown by its customers, allegedly made the loans to Paige and financed the airplane.
The plane was used for business and personal flights without authorization from General Cinema, but the trips were billed to the theater chain at Paige's direction, according to the SEC allegations. The billing fees allegedly were used to make the lease payments to Crown Financial, the SEC added.
In October 1978, General Cinema officials began investigating Paige's alleged activities and misstatements, and on March 22, 1979, Crown disclosed the existence of the Pasha payments, the SEC said. Paige resigned, and two months later Crown and General Cinema signed a new agreement for purchases of cans and bottle caps from Crown allowing for the recovery of the Pasha payments, the SEC said.